Should I foreclose?

I own a 1 bedroom condo in CA , bought for $380, neighbors units are selling for $320. I had a 2year fixed intrest only loan, talked to mortgage company after the 2 years & my payment went up an additional $400 a month. I'm struggling to make my payments & am wondering if I should foreclose. I know the market won't pick back up for a while & 1 bedrooms don't gain much equity. Can't get a roommate since it is 1 bedroom. I know my credit will be ruined for 7 years but I could be saving a lot more money during that 7 years & the property would not gain much equity if any. If I foreclose, could the bank come after my car or personal belongings? Will the bank make me pay the difference of the loan vs. what the home sold for? How long would I have to pay the difference & I definitely can't pay the difference. If I sold the home, what would happen to the amount I still on on the loan? I'm looking for real answers from CA. Thank you very much

You don't foreclose. The lender forecloses on the loan you have.

You should look into the consequences of a "deficiency judgment". If the lender forecloses and they don't get enough money from the sale to satisfy your mortgage, they place a judgment against you for the difference.

Call or communicate with the lender about re-negotiating your loan.

There may be other ways to save your credit. It requires facing the problem - head=on - NOT running away from it.

Thanks for asking your Q! I enjoyed answering it!

VTY,
Ron Berue
Yes, that is my real last name!

Yes, you borrowed 380k and spent it, they will be wanting it back.

They can go two ways. Since you never refinanced they will likely simply 1099 you. They count the extra money you received as income, and you owe income tax on it to the IRS and the state of CA. I advise you to pay CA right away, they are aggressive and fine heavily for unpaid income tax. Both of them will garish you if you do not pay, but will add about 400% in fees if you make them do.

If they are not going to report you to the IRS then you simply owe the rest of the money. They tend not to charge additional fees, other then interest. If you do not simply pay them they can garish 100% of tax returns and 50% of your take home pay.

You mentioned 7 seven years in your message so you are considering total liquidation (chapter 7) in which case I suggest you read:

http://www.bankruptcyhome.com/chapter13o...

Under Chapter 7 of the Bankruptcy Code all non-exempt property of the debtor is sold and the proceeds of the same are distributed to the creditors. In most cases where Chapter 7 is brought into force the debtor has no assets to lose, therefore the fresh start takes place relatively faster.

How Can You Be Sure This Is The Best Way?
Also known as liquidation (converting assets into money) or a straight bankruptcy, Chapter 7 Bankruptcy is the most common form of bankruptcy filing. This type of bankruptcy filing accounts for as much as 65% of all Consumer Banking filings.

This is one of the faster ways of starting afresh, and more so if there are no objections from any of the parties involved. Ordinarily, most (if not all) debts would be discharged within months of the attorney filing a bankruptcy petition.

How Does Chapter 7 Bankruptcy Work?
A trustee is appointed who collects all non-exempt property, sells the assets and distributes proceeds from this sale to appropriate creditors. Chapter 7 is different from other bankruptcy filings because the debtor needs not make a payment to the trustee.

Even though in some cases this would mean that you will lose all your assets, this need not always be the case. It is strongly recommended that if you are apprehensive and feel you will lose your assets, discuss the matter with your Bankruptcy Attorney.

Under Chapter 7 Bankruptcy, the debtor receives a discharge on all dischargeable debts. There are 19 general classes of debt, such as child support, most taxes and student loans that are discharged under Chapter 7 Bankruptcy.

An added advantage with Chapter 7 bankruptcy is that by signing a reaffirmation agreement a debtor can continue to pay for a car loan or a mortgage on their home. This agreement is in place because as per the US Government Bankruptcy Code a debtor could be allowed to retain some or all of his property.

For the roommate, it depends on your condo association bylaws. Even if they say it is not allowed, there would be ways around it. A couple can obviously live in a 1 bedroom condo. The association would have to prove that you are not a couple.

First, realize that in the foreclosure process they will incur a ton of legal fees which will increase the amount of money owed on the mortgage. Say they rack up $20k in legal fees. You are responsible for them. So if you owe $350 on your mortgage then the $20k will be added to that making the amount owed $370k. When they foreclose they will turn around and sell the property. Lets say they sell the property for $300k. That leaves a $70k difference.

Legally they have two options for this $70k. They can choose to tell you that you owe it and you would until it was paid off. This is because you took out a loan and still owe $70k. If you didn't pay it off then there would be collections, etc.

The second option is that the bank forgives the debt. If the bank chooses to forgive the debt then it would be considered income for you for the year. That means that you would now owe taxes on the $70k. If you are in the 20% tax bracket then this would be $14,000 you owe to Uncle Sam. We all know that Uncle Sam doesn't wait for his taxes.

Good Luck!

Don't worry about a deficiency judgement.
In the state of California there is no deficiency judgement available to a lender for purchase money trust deed.
If you refinanced, there might be a deficiency judgement. The bank doesn't want the property They can't sell it for more than the other units.
You can bail out and try to save up for later.
The bank may let you out. They probably have 30 other people in the same spot.