Foreclosure Question?

Question

Three friends & I bought a rental condotel in Wisconsin. The average monthly rent is not covering the mortgage payments...not even close. We haven't missed a payment yet, but all the partners are slowing running out of money to cover the payment. If worse comes to worse and we can't sell it, we will have to go into foreclosure. My question is does the bank that holds the mortgage note have to ability to go after everyone's assets. Meaning, can that bank go over our personal homes, personal savings accounts, etc? Or, does that bank just take a loss on the property they are secured by and hope to minimize the loss?

Answer 1

Did you get financing in your personal name or in the name of a corporation or LLC.  If it was in your personal name they may be able to come after you.

WI allows for deficiency judgments, so if the bank chooses they can sue you and receive a judgment.  This judgment will attach to all your other assets including your home or any other property you own as well as your checking accounts and wages.

Depending on the laws in your state regarding judgments and homestead, after receiving the judgment the bank may be able to foreclose on your primary residence or other real estate to get their money.  They may also be able to garnish your wages.

On top of that you will receive a 1099-C for Cancellation of Debt Income and will be liable to pay tax on the amount of debt forgiven.  You will receive this whether you do a loan modification, short sale, deed in lieu or foreclosure.

You may also be liable for Capital Gain Tax if you ever pulled any cash out of the property or depreciated the property.

If you are going to lose the home to foreclosure, a bankruptcy may be advisable.  Contact a bankruptcy attorney.

Mr. Financial Freedom

http://www.5stepstofinancialfreedom.com

Answer 2

The lender will only go after property that you have a mortgage.

However, this foreclosure will ruin your credit.

Answer 3

The Bank can take possession, sell it thru the foreclosure process and if they sell it at a loss, try to recover the loss by judgements or leins against the debtors.  Best bet is to offer  a deed-in-lieu or cash for keys to the Bank.  This way you can negotiate that you will not be liable for the difference if the property undersells the amount that is owed.

Answer 4

You can always sell it if the price is low enough.  That is what the bank will do....quick sale.  

The question is, what will the bank do if the sale proceeds don't cover the balance of the loan.  It probably won't, because these condotels are usually sold with a lot of hype and are overpriced and the rents never cover the costs.

Since this is a rental property, you had a commercial real estate loan, which frequently are "non-recourse".  This means that the lender does not have recourse to the borrower's assets; seizure of the collateral is the only option.  You need to read the papers that you signed very carefully.  Or did you guys personally guarantee the loan?  Please, for your sake, I hope you told them this was a rental unit and not for personal use.  If you got a personal mortgage for property for your own use, you may have gotten a little lower interest rate, but you committed fraud.  Get out those papers and start reading.  Good luck!

Answer 5

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Answer 6

chances are the bank will take it over and you guys just walk away.