If we try to get a deed in lieu of foreclosure from our lender, can they still go after us financially?
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If we try to get a deed in lieu of foreclosure from our lender, can they still go after us financially?
My partner has a house he was renting and is now empty in OR. We can’t cover the mortgage on it and our primary house in WA. We would like to get rid of the house but are afraid the bank can come after him. He makes a good living $170,000. Would they go after him because of his high income?
Asked on December 14, 2011 under Real Estate Law, Oregon
Answers:
M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney
Answered 12 years ago | Contributor
First off, with a deed in lieu of foreclosure, you give a residence to the lender (the "deed") in exchange for the lender canceling your loan. The lender promises not to foreclosure and to terminate existing foreclosure proceedings, if any. Just be sure to get it to agree in writing to forgive the difference or the "deficiency" that remains after the house is sold (i.e. you can be liable for the amount of the loan, plus any costs, that isn't covered by the sale proceeds). Otherwise, for an investment/rental property you can be sued for the deficiency.
However, since this is not a primary residence, there may be income tax consequences based on the amount of debt that is forgiven. Frankly, you should sit down with an accountant and discuss all of this with them.
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