If I bought a home with wraparound loan financing and our lender defaults on their loan, would foreclosure be in my name/destroy my credit?

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If I bought a home with wraparound loan financing and our lender defaults on their loan, would foreclosure be in my name/destroy my credit?

I bought/financed a home through a company with a wraparound loan. They have now gone bankrupt and defaulted on the loan they had with the original lender. We are working with the original lender now to save the place but don’t think it’s worth it and would rather walk away from the home and our deposit. Our question is since the original loan that was defaulted was with the company we bought the place from, will the forclosure still be in our name and destroy our credit? Is there a way we can get out of this and not affect our credit? We don’t care about the house or deposit at this point.

Asked on November 4, 2011 under Real Estate Law, California

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

If you bought a home with a "wrap around loan" and the person who you are buying the home from defaults on the underlying loan that the seller is responsible for, you will need to cure the underlying loan or run the risk of losing your home in a foreclosure.

As to having any damaged credit, since the loan that you did not sign any papers for nor are obligated upon is being foreclosed upon, your credit rating would not suffer as the result of the foreclosure proceeding that you are writing about. Good luck.


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