Homeowners - What Not To Do:
Homeowners - What Not To Do:
Losing your home through foreclosure is a traumatic experience that usually occurs at a time when you already are facing significant financial, and even physical and psychological stress. It is understandable why some homeowners make poor choices when facing foreclosure.
While some homeowners choose to "walk away" from (abandon) or trash their homes in the face of foreclosure, it is important to realize that these actions carry potentially significant consequences.
1. "Walk Away" from (Abandon) the Home. A homeowner can stop making their mortgage loan payments and abandon their home. However, this plan is usually unsuccessful in the long run. If you "walk away" from your home, you essentially abandon the property and your mortgage loan. Once you miss a single mortgage loan payment, your lender or its servicing agent will begin the foreclosure process and you may not be off the hook.
• If your loan is a non-purchase money mortgage (for example, if it is a refinance loan or a vacation home loan) you are not necessarily protected against future liability. If you "walk away" from this type of loan, you can be held liable for the lender's losses following a judicial foreclosure sale, including court costs and attorney fees.
• If you purchased your home on speculation (hoping to resell the home for a higher price) and have not occupied the home, the loan you obtained to purchase the property is a non-purchase money mortgage. If your lender or its servicing agent elects a judicial foreclosure sale, you may remain personally liable for any deficiency at the time of the foreclosure sale. If you "walk away", your personal liability remains unchanged.
• If you "walk away" from your home, you are still liable for any non-purchase money mortgages that are secondary or "junior" loans (claims/liens). Foreclosure sales do not extinguish these debts and your creditors can seek court judgments against you. In these cases, a "junior" lender may sue in court to obtain a judgment for its losses, as well as court costs and attorney fees (a "sold out junior").
• Federal laws that generally supersede California law control federally insured (FHA) loans. The lenders holding such mortgages typically file claims for the insurance coverage. HUD/FHA may be able to pursue you for any losses they suffer following a foreclosure sale and the payment of the insurance proceeds to your lender.
Laws pertaining to "walk-away" homeowners are complicated and no homeowner should "walk away" from their home and their mortgage loan without seeking the advice from a real estate lawyer. A common "walk-away" situation occurs through divorce. In most families, both the husband and wife sign the mortgage loan documents for their home. If the couple divorces, neither may be able to afford the mortgage loan payment and there may be little to stop either spouse from walking away leaving the other to shoulder the financial burden.
2. If a foreclosure sale occurs because of divorce and both spouses signed the original mortgage loan documents:
• Each spouse will be required to vacate the home after the eviction process is completed.
• Each spouse will experience a loss in credit rating.48
• Each spouse will struggle to secure mortgage loans for at least five years.
Divorce does not automatically erase the name of either spouse from their mortgage loan or from the consequences of a potential foreclosure. Lenders or their servicing agents are unlikely to "remove" one spouse from the mortgage loan before the foreclosure sale simply to preserve that person's credit rating.
3. Trash the Home. Your home is collateral for repayment of your mortgage loan. Its value is the ultimate source of repayment, and its value should not be impaired by your intentional or unintentional behavior.
Deliberate damage to your home is one form of "waste". If serious damage occurs, you may be prosecuted for a crime and you may be sued for damages. Arson (the deliberate destruction of a home by fire) is the most egregious example of waste.
No matter what circumstances bring a homeowner to the point of foreclosure, there is no justification for that homeowner to retaliate against a lender or its servicing agent by damaging the home.
4. Bankruptcy. Foreclosure is not personal. Lenders are simply protecting their interests. If you seriously damage your home before the foreclosure sale, you can be held liable and have a money judgment entered against you that can survive for as long as 20 years. Bankruptcy usually does not remove this kind of money judgment. Over the life of the judgment, the creditor may pursue a variety of collection proceedings, including taking a part of your wages.
While your lender may elect not to sue you for physical damages (called waste), trashing your home is an ill-advised risk. Even if your lender chooses not to pursue a money judgment against you, your lender can notify the district attorney and ask that criminal proceedings be brought against you. The successful bidder/buyer who purchases your home at the foreclosure sale, typically "as is", can also notify the district attorney or bring a civil action against you for intentional damages to the home.