Tuesday, October 23, 2007

California Foreclosure

Okay so I now know someone going into foreclosure over $50k. I don't know if this is a wise move or not. Yes it's a lot of money. And yes the person does have the $50k to pay it off, but they refuse to "throw good money, after bad."

The question, is this a smart move or not? The foreclosure will ruin the person's credit. However, is it worth ruining one's credit over $50k?

I guess it's much like bankruptcy. For one person $50k is enough to drive them to declare. While for others having $300k in debt is nothing. It depends on the situation.

Would I do it? Probably not, mainly because there are too many variables which could arise from the foreclosure. It will make finding another job more difficult. It can make getting any loans more difficult. But I say the same thing about BK. However I realize I could quickly end up in either position given the right circumstances.

I wonder though if this is the right move? To the friend, my advice was to carefully consider if it is worth doing just for $50k. That's barely more than what they paid for their fancy car.


Anonymous said...

If the house goes into foreclosure, it will be auctioned off and sold. If the price doesn't cover the $50K, your friend will owe the difference. So, he will be out the house and still owe money. Not a smart move.

If they have the $50K, save the house and hold it. Rent it. The market will be back. Lots of people in CA will now need a place to live. because of the fires.

Living Almost Large said...

Actually if the house goes into foreclosure they won't owe anything. They consulted a real estate attorney, never having refinanced, none of their assets will be gone after.

They can walk away from the house free and clear except for damaged credit.

A lot of people in CA are doing this. That is the problem with all the crazy loans and subprime mess.

Yes they can easily afford the house, but they no longer want to wait for it to come around. They do not want to live there and wait for the market to come back. They are the type of people who chase the newest return on stock.

They bought the condo trying to make a quick profit fast. Unfortunately they didn't and they do not care to live there any longer.

English Major said...

Maybe CA law is different than most states, but it's my understanding that boomie is right--the mortgage company is entitled to sue your friend for the difference between the mortgage balance and what the house brings, unless your friend and the company sign a "deed in lieu of foreclosure without recourse" agreement.

Living Almost Large said...

The couple is not doing a deed in lieu of foreclosure. They are doing a non-judicial foreclosure.

What that means is they are going to stop paying and have the bank foreclose. They are not giving it back to the bank because in a "deed in lieu of foreclosure" you owe the difference between what it is sold and what is owed on the mortgage.

In a foreclosure, where the bank comes and takes the property because you haven't been paying you are not obligated to pay the difference. This is not true if you refinances. However by having not refinanced you can just live in the house for 6 months without payment and then the bank will evict you.

They will sell the house at an auction. However they cannot come after you for the loan.