Expert: Michael Brotherton - 6/13/2007

Question
QUESTION: Hello,
I am in a jam where I may have to let a rental property go into foreclosure.  The property also has a second mortgage that is held by an individual.  What will happen to me aside from loosing the property and ruining my credit if the property forecloses. Can they go after my personal assests in Colorado? -thanks for your help

ANSWER: In most cases they can attempt to collect any deficiency and go after personal assets and income. My experience is most mortgage companies don't collect deficiency balances although they can legally. Depending on the 2nd mortgage holder you may be able to offer a settlement on the send and ask the bank to take a deed in lieu of foreclosure and forgive the remaining balance. There is a process to doing a deed in lieu so make sure you know the process or have someone who knows how things work negotiate on your behalf. Most attorneys don't have a clue about deeds in lieu or other non-legal resolution options so don't let anyone talk you into bankruptcy at this point. It isn't necessary unless you are being threatened with attachment or garnishment. How big is your second mortgage? This is the one I would be concerned with. They have more to lose than the bank since the bank has deeper pockets.

---------- FOLLOW-UP ----------

QUESTION: The second mortgage is about $20,000.  I have a feeling that the individual would take every effort possible to collect the debt.  The property is pretty much 100% financed and I have about $10,000 or less in equity in it.  Would you suggest refinancing and putting it all into one loan and paying off the second and then letting it go into foreclosure as the loan will then only be held by a bank.  I am also interested in more info on doing a deed in lieu, could you explain that a little more? -thank you

Answer
If you have the ability to refinance the loan it would be something to consider.

Deed in lieu of foreclosure is usually only available if you have no second mortgage but can be a good way to settle a mortgage without a deficiency balance. It can be considered a settlement in full. You can get more information at my web site at www.financialemergency.com.