If a house is foreclosed on, can a bank come after a surviving spouse for the difference?

UPDATED: Jul 20, 2010

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If a house is foreclosed on, can a bank come after a surviving spouse for the difference?

I will be foreclosing on my house because my spouse died and he was the main source of income. We own a business, will the bank seize the business? The house has 2 mortgages, and upside down in value (about $150K). The business was purchased with the house as collateral and there is a 3rd lien on the business. What is going to happen to the business? Can they foreclose on the business? Will they hold me financially liable after the house is foreclosed upon? The business has also decreased in value, so I cannot sell it at this time. I have a business partner to think about also, how will this affect him legally? His home is also tied to the business.

Asked on July 20, 2010 under Real Estate Law, California


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

1) If you were also on the mortgage along with your spouse, and the home is now worth less than the remaining balance of the loan, in many circumstances, the lender can indeed sue the debtors (the people who took out the mortgage) for any "deficiency"--i.e. for the amount remaining after the proceeds from selling the house in foreclosure are applied to the loan. Speak with an attorney who can review your mortgage and the situation to see if this could apply to you.

2) If the house was collateral for the business and not the other way around, then the business cannot be foreclosed on for nonpayment of the mortgage. As long as you pay any obligations which are secured by the business, the business is not directly at risk.

3) If you are sued for a deficiency, however, then your ownership interest in the business is one asset the bank could look to for payment.

In a situation like this, you really need an attorney to review all loan, guarantee, security, etc. agreements to see what the potential exposure and liability really is.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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