Q&A: 2 foreclosures in California, what will happen?

Question by Christina DeSantis: 2 foreclosures in California, what will happen?
Long story short, My mother and father own there own home witch is there primary residence. in 2004 my parents took out a mortgage loan to help my brother and his wife out since they could get the loan in there name, my brother and his wife ended up going on the deed instead of the actual loan, they however are paying the mortgage.He has an adjustable rate so this august his rate will go up. In 2006 my parents took out another mortgage loan for my husband and I. My mother purchased a condo for 370,000 in California and now like every home owner her property is only worth 160,000. My husband and i have been paying the mortgage that is around 2,000. My mother has told my brother and i that she wants us to walk away from the houses and let them foreclose since we could get our own loan easily now and live in something that will accommodate our growing family and not pay for something that isn’t worth paying, Or worst case rent something for much cheaper and bigger (our condo is a 2 bed room 1 bath) She says she wants us to stop making the monthly payments and live in the property as long as we can to save that money for our down payments on our own mortgage loan. I think this sounds like a crazy idea to let 2 homes foreclose. She said she has talked to an attorney and he has said its not worth it to short sale the homes to us because she would pay taxes at the end of the year on whatever the difference was in the short sale. meaning shes looking at about 20,000 or more in taxes at the end of the year that she will owe the irs. My question is, if we decide to listen to her and walk away from our homes that are in her name, will they go after her home she lives in now if she owns it out right? she understands that her credit will be shot for a very very long time and is willing to make that sacrifice to see her children living in a house that they actually want to live in for the rest of there life’s. Im just nervous taking her advice because i don’t no whats going to happen. Are they going to try and come after her somehow once the houses foreclose? besides her ruining her credit what else could potentially happen? Im not looking to hear what people think of the idea or there sarcasm, all i want to know is what is the worst that can happen?
I don’t see how we would have “robbed the bank” if the 2 houses are given back to the bank, what more can we possible owe? We have no seconds on any of the houses, isn’t giving the house back to the bank and walking away calling it even as far as owing anything?

Best answer:

Answer by Bert
Your Mom stuck her neck out for her children, and it is proper that the children do what the Mother wishes. She has seen the attorney, not you. Go with Mom. If she needs future help, you know where that is going to come from.

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2 Comments/Reviews

  • chica boom says:

    I am currently short selling my California home. This real estate stuff is just a mess, millions of home underwater and I bought mine in 2007. I, like your mom is suggesting, walked away from my home and the bank has asked me to list the property for sale for 100,000 less than I purchased. I tried a loan mod and they denied me and this was my alternative. To be honest, I could care less about my credit at this point. I see what your mom is saying, it makes financial sense to walk away. I don’t think they can come after your moms home if your home was purchased from her mortgage line of credit, but I would pay for an attorney to double check. Also, you will have to pay state income tax on the debt forgivness.

    I think your mom feels bad because she wants to see you guys thrive and in this economy, many people were duped into thinking home values would be sustainable or go up forever. If you want to get the bank to work for you, then you need to stop making payments. My bank would not even talk to me and gave me the run around until I finally just stopped paying my mortgage. Unfortunately they are just encouraging and rewarding bad behavior because they will not help a responsible person that is current on their mortgage ( this is what happeened with me and that is why I strategically defaulted). Your bank may notify you after missed payments and suggest modifying your loan and possibly forgiving some principle.

    At this point it is really just a business decision, don’t worry about the moral aspect (I did and it got me nowhere) and of course, had the banks acted ethically all along, there would not be problems like there are today.

  • Landlord says:

    They can’t foreclose her home. They can lien it, and get their money returned after the foreclosure.

    Since these are investment properties she will continue to owe the money after the foreclosures. She will not simply keep the money and go about her life richer after having robbed the bank.

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