Real Estate Law
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If you walk away or stop making payments, the lender has the right to foreclose on the property. There's not a lot out there to help you if the lender won't do a modification and you can't refinance with another lender.
If you have resolved to leave the house, my suggestion would be to offer the lender a deed in lieu of foreclosure, which is a voluntary return of the property to the lender - avoids foreclosure. Also, if the lender accepts the deed, it cannot seek a deficiency judgment against you. The only catch is that the lender has to agree to this. Lenders usually will accept a deed if it believes it can collect most or all of the amount due on your loan from a private sale of the property OR if it believes the debtors have no way to pay a deficiency judgment.
If you are foreclosed on and the lender does not receive enough money to retire the debts, it can (and usually will) seek a deficiency judgment. Deficiency judgments are limited to the fair market value of the property less the unpaid balance of the loan that was foreclosed.
Sure. A deficiency judgment is a money judgment for the difference between what you owe the lender and what the foreclosure sale generated. For instance, if you owe $200,000 and the lender recovers $150,000 from the foreclosure sale, the lender would be entitled to a judgment against you for $50,000.
Once the lender obtains a judgment, it can garnish wages or your bank accounts. Minnesota Statute 550.136 and 551.06 governs wage attachment. The maximum part of an individual's disposable earnings for a pay period that can be garnished may not exceed the lesser of:
1. 25% of the disposable earnings, or 2. The amount of the disposable earnings that exceed 40 times the federal minimum hourly wage. The portion of the defendant's earnings which are not subject to a wage garnishment are also exempt from garnishment for 20 days after they have been deposited in any financial institution, whether in a single or joint account. The burden of establishing that funds are exempt rests on the defendant using the first-in first-out accounting method.
1. 25% of the disposable earnings, or
2. The amount of the disposable earnings that exceed 40 times the federal minimum hourly wage.
The portion of the defendant's earnings which are not subject to a wage garnishment are also exempt from garnishment for 20 days after they have been deposited in any financial institution, whether in a single or joint account. The burden of establishing that funds are exempt rests on the defendant using the first-in first-out accounting method.
Exempt property under Mn. law can be found here: http://law.justia.com/minnesota/codes/540/550-s37.html
A foreclosure and deficiency judgment will harm your credit and stay as a blemish for 7 years. It will affect your ability to obtain credit. As for your children, they can get student loans on their own without you co-signing (I know this from personal experience!!).
Once the house goes into foreclosure, the lender expects nothing from you until after the sale (if there is a deficiency). You have a right to live in the house through foreclosure and actually after for the length of your redemption period (this time frame varies and should be in your loan documents).
If you offer a deed in lieu of foreclosure, you'd be deeding the property to the lender - who would also be the buyer. No need to have a buyer lined up.
Yes. If you're susceptible to a deficiency judgment, you should do your best to reduce your exposure.
You should pay what you can because it is going towards reducing the debt. However, as you know, if you are $0.01 short, the payment is considered late and the loan is in default. Usually, a lender allows a loan to go 4-6 months before foreclosing.
IF you don't make the full payment, it is considered late, and fees/penalties would be assessed.