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You are here: Experts > Business > Small Business: Canada > Financing -- Loans > equity loan default
Expert: JT Holt - 10/24/2009
Question
3 years ago, we took out a home equity loan on our mortgage free house to buy another property. We have been paying the interest only on the loan until we sell our house and move into the new property. Our house now, 3 years later, can only be sold for less than what the loan is (about $75,000 difference). It has been suggested that we should just default on the loan and let the bank have our house since we can now only sell it for less than what we owe. What are the consequences?
Answer
Betty, My suggestion would be not just to quit paying or to walk away. I believe that is in your best interest to go in and talk to the lender and speak to them about what your options are, what you are considering, and what would be in the best interest of both parties. The lender may allow you to short sell the property for an amount less than what you owe to them on the property. They can handle the difference owed several different ways including writing it down or off.
From my personal experience as a lender I have taken the approach to work with those that want to work with me. Those that do not want to work with me I pursue as far as I can to obtain payment in full. When a property sells at sheriff's sale for less than what is owed to the lender here in our State we have the ability to then put a judgement for the difference owed against that individual. This judgement can be left out there for years to come and should you sell a property in the future or receive compensation from certain sources the lender may receive those funds due to them for the difference that was owed. This may be different in certain States and I would suggest you contact an attorney if you decide to default on your loan to make sure you fully understand all of the ramifications.
Best of luck to you and your family in this decision.
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