Losing Tenant on 2nd home - have to foreclose

I have owned a condo for 4 years.  For the first two years I lived in it. I entered into a bad loan and was one of those people that got an interest only ARM loan.  So, I have no equity.  The arm is set to go sky high in 2011.  Two years ago, I met my now wife.  We got married, I tried to sell the condo two years ago with no luck.  So, I rented it and moved in with my now wife.  We then proceeded to buy the house she lived in.  So, now I have two mortgages.  I lost a tenant that stopped paying and I had to evict. Now, I have a tenant for almost a year, but I am underwater on the property and out of pocket cash after rent, about $7k a year. She is not renewing her lease which is up in two months.

I am going to list the property as a short sale, but when my tenant leaves in two months, I will no longer be able to pay the mortgage.  If this property does not sell short sale, I will have to foreclose.  I now have four kids I have to support. 

Is there any other solutions? No, I dont want the property.   What else can we do? How bad will my credited be affected?  We wanted to move within 5 years. 

11laura11:

Is there any other solutions?

Can't think of any.

11laura11:

How bad will my credited be affected?

Very bad. I have read that foreclosures drop your score by as much as 250 pts. Short sales maybe by 150 to 200 pts.

11laura11:

We wanted to move within 5 years.

5 years after a foreclosure or short sale you might be able to qualify for competitive mortgage rates, if your credit record after the foreclosure is squeaky, squeaky clean.

A critical factor is whether or not your loan is recourse or non-recourse.

If non-recourse a foreclosure sets you free.

If recourse you might be looking at a bankruptcy in your future cause the lender will come after you for the deficiency.

 

I live in Massachusetts. How do I find out if my loan is non-recourse or recourse?  I think all loans in Massachusetts are non-recourse.  Am I correct?

Here's a list of states that are non-recourse:

http://www.helocbasics...

Massachusetts is not on the list.

And here's a site that says borrowers are liable for a deficiency:

http://www.foreclosure...

I can't guarantee the accuracy of either site.

Here's the Massachusetts foreclosure statute:

http://www.mass.gov/le...

If you can't find it in there, you might call your secretary of state and ask if Massachusetts has an "anti-deficiency" or "deficiency" statute and get the statute number so you can look it up.

I found this information. So, does this mean I am all set and they can't come after me for a deficiency? (see below) Is there a right of redemption in Massachusetts?

No. Adeficiency judgment may not be generally obtained when a property in foreclosure is sold at a public sale for less than the loan amount which the underlying mortgage secures unless certain notice requirements are met. An attempt to collect a deficiency will potentially open the door to a redemption action in a judicial foreclosure.

top Are deficiency judgments permitted in Massachusetts?

No. Adeficiency judgment may not be generally obtained when a property in foreclosure is sold at a public sale for less than the loan amount which the underlying mortgage secures unless certain notice requirements are met. An attempt to collect a deficiency will potentially open the door to a redemption action in a judicial foreclosure.

top What statutes govern Massachusetts foreclosures?

The laws that govern Massachusetts non-judicial foreclosures are found in Chapter 244 of the General Laws of Massachusetts. Both judicial and non-judicial foreclosures are covered under this statute.

http://www.mass.gov/le...

I found a site that has thos exact paragraphs:

http://www.foreclosure...

I also found another site that seems to say the opposite:

http://ezinearticles.c...

"Deficiency judgments are allowed in Massachusetts. When judicial foreclosure is used, the bank may seek more money than was generated by the sale of the property. They can seek this money from the former homeowner and only for the difference between what is owed and what the home sold for at auction. It is hard to get a deficiency judgment and further, it opens the door to a right of redemption period for the former home owner, so it is generally no sought after in this state".

I also found the following in the statutes:

• "Chapter 244: Section 17A. Limitation of actions Section 17A. Actions on mortgage notes, whether witnessed or not, or on other obligations to pay a debt secured by mortgage of real estate, to recover judgments for deficiencies after foreclosure by sale under a power contained in the mortgage, and actions on such notes or other obligations which are subject to a prior mortgage, to recover the amount due thereon after the foreclosure by sale of such prior mortgage under power contained therein, shall, except as hereinafter provided, be commenced within two years after the date of the foreclosure sale or, if the principal of the note or other obligation does not become payable until after the foreclosure sale, then within two years after the time when the cause of action for the principal accrues."

That's basically a two year time limit on filing post-foreclosure actions on mortgage notes. That actions "to recover judgments for deficiencies after foreclosure"  are included in the limitation certainly implies that deficiency judgments are permitted. So it seems that there is a possibility that they can come after you for a deficiency even though it seems that the chances might be rather low.