What legal action can be taken against me if I buy a second much less expense house and let my current house be foreclosed on?
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What legal action can be taken against me if I buy a second much less expense house and let my current house be foreclosed on?
My wife and I have great credit but can no longer keep up with our current mortgage. We bought our house 7 years ago when we had no kids and could work unlimited hours. Now we have 2 kids and the unlimited work has dried up. We need a house to raise our family in but can’t keep up our current mortgage. If we buy a second less expense home now and stop making our current mortgage payments what actions can be taken against us. Can the mortgage company come after our new house or any other items we own? Other than hurting our credit, are there any other negative consequences of doing this?
Asked on May 16, 2011 under Real Estate Law, Ohio
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 13 years ago | Contributor
The good news is that the mortgage company for your first home cannot foreclose on your second home. However, that does not mean that don't have remedies.
First, if after foreclosing on your current home and selling it at auction, it brings in less than the remaining balance on the mortgage (i.e. is underwater on the loan), the mortgage lender can proceed against you any outstanding amounts still due (called seeking a "deficiency judgment.") If they obtain this judgment against you--which is likely, if you do owe extra money--they can seek to enforce it against you in several different ways, such as by garnishing a bank account or wages, or by putting a lien on your new home. This type of lien does not allow foreclosure, but it will be a cloud on title that will effectively prevent selling the home and inhibit obtaining an finance (e.g. a home equity loan or lien) until it is paid off.
Second, when filing out the mortgage application for the new home--assuming it's not an all cash transaction--be certain to be completely truthful. If questions are asked about other properties, current mortgages, etc., answer correctly and completely, even if that risks not getting financing; otherwise, you will have committed fraud and may be subject to substantial liability.
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