Walking Away Help

[Peter Simos]

I need to consider "Walking Away" if my loan Mod request is rejected. My loan value in 490K, but the house sell value is probably 390K.
If I walk away from it, could the servicer, Litton< come after me for the remainder: 100K???. I live in Connecticut and the state laws could vary.

Any advice out there? Thanks,

Peter,

[The Professor]

Of all the 50 States, Connecticut fits the bill of being the most lender friendly I've found. Foreclosure periods appear to be short and the process of determining the amount of a deficiency judgment appear summary in nature. According to one source:

"Are deficiency judgments permitted in Connecticut?
Yes, a deficiency judgment may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount that the underlying mortgage secures. This means that the borrower still owes the lender for the difference between what the property sold for at auction and the amount of the original loan. Deficiency is governed under §49-14 General Statutes of Connecticut. An appraisal process and hearing must be held on any application for a deficiency judgment."

Were I in your shoes I'd be looking for a "short sale" solution that has lender participation and is designed to get the lender to let you off the hook for finding an effective solution to what is a salvage operation for you and the lender.

Take care,

Daniel

[mnhomeowner]

I have a similar question for my parents. They live in Minnesota...they have 2 loans on their property and will be walking away. I know Minnesota does allow deficiency judgements, however I'm wondering if it is very common/does it happen often? Thank you for your input!

[Lisa in MN]

Hi Mnhomeowner,
I have spoken to an attorney and he said MN does allow deficiency judgements but he said they are rarely done because the companies know the chance of success are slim- if people had the money they would not be in foreclosure- and do not want to waste anymore money on attorney fees, etc.... However, MN does allow it.
Lisa

[mnhomeowner]

Lisa,

Thank you for your response. I had heard that before but of course I wanted to hear it again! LOL You have been a great asset to this site and I always read your posts! Hope you have a great 2009!

[The Professor]

Originally Posted by Lisa in MN

Hi Mnhomeowner,
I have spoken to an attorney and he said MN does allow deficiency judgements but he said they are rarely done because the companies know the chance of success are slim- if people had the money they would not be in foreclosure- and do not want to waste anymore money on attorney fees, etc.... However, MN does allow it.
Lisa

The problem with this conclusion is it ignores the practice of lenders either packaging and selling or consigning so-called uncollectible debt to collection agencies who focus their collection efforts on ascertaining a borrowers assets before commencing collection actions. If you have assets that are discoverable I wouldn't be so sure a collection agency won't come calling.......

Daniel

[mnhomeowner]

Prof thank you for your insight. My mom is the only one with a retirement (401K) and like everyone else she has taken a HUGE hit. Could they touch the retirement money?

[The Professor]

This is a great question and one you should be asking of an attorney who can look at the 401K documentation and render an opinion. Having said that let me get you focused on the right questions to ask by providing the following information I pulled off an attorney's website that will help equip you to ask the correct questions. It is asked in the realm of a bankruptcy setting, but it would be applicable to your situation because worse case is you would file a bankruptcy to stop creditor execution.

Daniel

Retirement savings in bankruptcy

More and more, retirement savings or pension rights are the single most valuable asset of individuals filing bankruptcy. Two separate concepts determine whether creditors and bankruptcy trustees have any rights to the debtor's retirement assets:

Is the retirement fund property of the estate?
If the retirement fund is property of the estate, can it be exempted?
Property of the estate?

The Supreme Court held that retirement plans that have a legally enforceable anti alienation clause (a provision preventing creditors from attaching the retirement funds of a debtor) are not property of the bankruptcy estate and thus are not subject to the jurisdiction of the bankruptcy court and cannot be accessed to pay creditors.

Nearly all pensions and 401K savings plans that are qualified under ERISA, the federal pension savings act, have an anti alienation clause that excludes them from the bankruptcy estate.

An exception to this rule is retirement plans that have only one participant, such as single employee corporate plans, and some other plans originating in self employment. These plans may be property of the estate. They may be vulnerable to creditors unless subject to an exemption. Get good professional advice if this describes a significant asset of yours.

Assets that are not property of the estate don't even have to be the subject of a claim of exemption: these funds simply don't enter into the equation regardless of the size of the benefit.