Hello everyone. I am new to RIE. I needed to understand the mortgage matter. My hypothetical statement goes like this. My house is worth 75k, I owe 100k, an investor is bying it for 50k . If the RI buys for 50k, I still owe the bank another 50K, what happen to my name on the mortgage? do I need to come up with the other 50K?
Yes, you will still owe the bank the other $50K. The only real exception is a short sale, in which the bank allows the buyer to buy the property at less than the mortgage balance. This is usually only done when the loan is in default.
Good Luck,
Mike
Thank you PropertyManager for your input. Can you share with me, how can I negotiate with a homeowner to purchase his property for less? if he still is responsible for the remaining mortgage of his property, how can I convince him to purchase his property in wholesaling? I am looking to flip a contract only for now, I am new to real estate investing, so I like to start small. Thank you again for your wonderful quidance.
You would need to get approval from the bank to complete a short sale. Usually you have to be in default on the loan. It hurts your credit, but no where near as much as a foreclosure (7 years) or bankruptcy (10 years). It will show up on your credit as settled but not paid in full. You can repair you credit quickly by being in good standing with the rest of your creditors, maybe 2 years depending on the rest of your credit standing. There are a lot of people in the same situation, even much worse and on many properties. Once people understand more of the credit impact, they will opt to let go of their home that they owe sometimes twice as much as it is worth. Many will get a private money loan for a new home. It is very unfortunate, but reality.
Not all Short Sales will wipe out the deficiency… It depends on the negotiation with the lender(s)… However in most cases it will. You maynot have a deficiency even in foreclosure…
The five situations in which a deficiency judgment is prohibited?
- Trustee’s Sale.
A lender may not pursue a deficiency judgment against the borrower should the lender opt to foreclose by a trustee’s sale foreclosure.
- Seller Carry back.
If the purchase money loan for any type of real property is financed by the seller and secured by that same property, the lender/seller may not obtain a deficiency judgment against the defaulting borrower/buyer.
- Purchase Money.
If the loan is obtained to purchase a residential 1-4 unit dwelling all or part of which is owner occupied and the loan is secured by that property, the lender may not obtain a deficiency judgment against the defaulting borrower. This loan is entitled to “purchase money” protection. Note, however, that should the buyer refinance the home, the new loan is no longer “purchase money.” Thus, the buyer would lose the protection against a deficiency judgment in the event of a default if the lender elects to use a judicial foreclosure process.
- 3 Month Time Limit.
An action for a deficiency judgment must be brought within 3 months from the time of judicially-ordered sale.
- Fair Value Limitations.
A deficiency judgment is limited by the difference between the amount of the indebtedness and the fair market value of the property, unless the actual sale price exceeds that value.
Holders of a junior deed of trust (second, third, etc.) should note that if the “wiped-out” junior lien is not purchase money or seller carry back, then the junior lien holder may sue on the note and the borrower on the junior loan may be personally liable.
Michael,
Aren’t your answers specific to CA law and might the answers be different if the property is located outside of CA?
Yep your correct… I keep forgetting that California isnt the entire USA… 