Just walking away

[JustRandy]

What is the name of your state (only U.S. law)? TN

Mom owns 2 houses. House #1 she has no equity. House #2 is 50% paid for and is the one she resides. What happens if she just stops paying on house #1 and walks away. She's been trying to sell it for years and its not very likely she ever will (at least not for the value of the mortgage). She is afraid they will take both houses. I'm thinking since house #2 is not paid for, how can they take it? It doesn't belong to her. Even if she is sued, her only income is ssi disability. Can they garnish that??? She has this idea that if she stops paying, they will take everything she has and leave her destitute. What is the reality? Thanks

 

[justalayman]

well, it goes like this:

if she walks away, they will foreclose. They will then sell the property. Based on your statements, there will be a deficiency (balance remaining on the mortgage loan). They can sue your mother for that deficiency if they choose to. If they will or not is up to them.

A judgment over $500 can be placed as a lien against her residence. There are allowable exemptions for a homestead they cannot attach. For a single person that is $7500 or if over 62, $12,500.

The only question remaining is: can the enforce the lien and demand the house be sold. I haven't found the answer to that one yet.


Remember, there are a lot of; they can. That doesn't mean they will but it also leaves it up in the air.

Has she spoken with the lender about this? Depending on the difference in value, one option to consider is a deed in lieu of a foreclosure. It is faster and easier for the lender so if the loss is not great, they might consider it.

 

[JustRandy]

well, it goes like this:

if she walks away, they will foreclose. They will then sell the property. Based on your statements, there will be a deficiency (balance remaining on the mortgage loan). They can sue your mother for that deficiency if they choose to. If they will or not is up to them.

A judgment over $500 can be placed as a lien against her residence. There are allowable exemptions for a homestead they cannot attach. For a single person that is $7500 or if over 62, $12,500.

The only question remaining is: can the enforce the lien and demand the house be sold. I haven't found the answer to that one yet.


Remember, there are a lot of; they can. That doesn't mean they will but it also leaves it up in the air.

Has she spoken with the lender about this? Depending on the difference in value, one option to consider is a deed in lieu of a foreclosure. It is faster and easier for the lender so if the loss is not great, they might consider it.

Thank you very much for the detailed reply! Yes there almost certainly will be a deficiency... possibly as large as $40k.

I read here: http://www.ehow.com/list_7690223_homestead-rights-land-tennessee.html

"To accommodate people 62 and older, Tennessee raised the homestead exemption limit. As of 2004, someone 62 or older may claim up to $12,000 if single and $20,000 if married. Married couples 62 and older may claim up to $25,000. Beginning in 2007 an individual with at least one minor child dependent may claim up to $25,000."

Her husband is 71, therefore $25,000 is exempt (if that is correct).

The house she is living in, she bought for $100k and has $50k equity. So if there is a deficiency from the 2nd house of $40,000, then the liens would be structured as follows:

Senior lien $50,000
Junior lien $40,000 - $25,000 = $15,000???

Or would it be $100,000 - $25,000 = $75,000 lien-able, and then:

Senior lien $50,000
Junior lien $75,000 - $50,000 = $25,000???

I also read: http://www.ehow.com/info_11385149_can-happen-someone-puts-lien-personal-property.html

"There are several restrictions on such a sale, especially if the lien is on a home. In that case, a forced sale cannot be ordered if the creditor's spouse or underage children reside in the home, or if a disabled adult child lives there."

Since my mom's spouse lives in the house with her, the house cannot be forced-sold, right?

Furthermore: http://myaaud.com/documents/document_8.pdf

"Tenancy by the Entirety. Unlike real estate owned individually or as joint tenants, real estate owned in tenancy by the entirety cannot be the subject of a judgment levy. However, debtors who are husbands and wives are the only individuals who may take title to property as tenants by the entirety. Thus, as long as the husband and wife remained married and live together at the property, no judgment creditor of either the husband or the wife alone can acquire rights by sale of the land. This is because neither the husband nor the wife can independently sell his or her interest. THEREFORE, WE WOULD SUGGEST THAT MARRIED COUPLES CHANGE THE TITLE ON THEIR PROPERTY TO TENANCY BY THE ENTIRETY IN ORDER TO AVOID JUDGMENT CREDITORS FROM LEVYING THEIR HOME.

I know both their names are on the deed, but I don't know how its worded.

It seems to me she could just stop paying and let the creditor file a judgement lien for the deficiency on her residence. After that there is nothing else they can do. The residence cannot be forced-sold. Their income is protected under social security law.

What about vehicles and other property?

 

[justalayman]

zooming around looking for info, I ran across another site where a poster that appeared to be informed stated that exemptions must be filed when/if she is sued. If it comes to that, I would keep that in mind and verify that and act as such.

The senior lien does not come into play when she is actually being sued. It only applies if the lien is foreclosed. Obviously they cannot take more from a sale than there is available though. What would happen is the remaining debt would simply remain as a judgment debt.



I would be cautious with ehow, or any other site that isn't state specific. It did not seem to be state specific (didn't read it thoroughly though). Each state is going to have its own law concerning this so when researching, try to stick with sources that are very state specific. Generalities are just that; general information and may or may not be applicable to the situation at hand.

I didn't realize (and didn't ask) about the spouse. Obviously, yes, that may make a huge difference here. I believe joint debts are not safe even if there is tenancy by the entirety. Most of what I have read about tenancy in the entirety does allow for a joint debt to be applied against anything held as tenant in the entirety. As such, if the second home is held jointly, it may be irrelevant.

Not that I'm into people cheating out of debts but I also do not want to see anybody homeless but we aren't talking Donald Trump levels of money here. If tenancy in the entirety would benefit them and it isn't applicable now, they should look into altering their title to reflect that. I strongly suggest actually setting down with a lawyer and discussing that first though. It may have other ramifications that are undesirable. It could benefit them in several other situations that, due to their ages, may become a realistic possibility.

Senior lien $50,000
Junior lien $40,000 - $25,000 = $15,000???

Or would it be $100,000 - $25,000 = $75,000 lien-able, and then:

Senior lien $50,000
Junior lien $75,000 - $50,000 = $25,000???

Huh?

If your numbers are correct, it goes like this (and your numbers could be correct, I have not verified but will take your word for it)



judgement $40k but lien exemption of $25k = $15k attachable as a lien

there is still going to be a $40k judgment but all they can attach as a lien is the $15k. The $25k doesn't just go away. The judgment is still going to be for $40k total. The exemptions are only used to calculate how much can be attached as a lien. The same goes for any other property. It's not that the amount of the judgment is reduced. It is simply they cannot take what is allowed as an exemption if they take action to collect on the judgment. That means, they can only lay claim to the $15k against the house. So if it were sold, all they could take would be (up to, if available, meaning not paid to a senior lien) $15k of the proceeds.

the senior lien is irrelevant in this situation at that time. Only if the lien was foreclosed on or the house was sold would it come into play.

the liens on a property can exceed the value of the property so value is irrelevant when the liens are attached.

 

[JustRandy]

I continue to appreciate your help!

Here is a bit of background: This all started when she moved from NY to TN. Her and her husband at the time moved without selling the NY house. They bought a home in TN in which to live. He had plenty of money and wasn't concerned too much about selling the NY house. Then he dies and the money with him. So mom then had the TN house with zero equity and 100% equity in NY house. This happens at same time as housing crash. It takes her a while, but she finally sells NY house. She marries again and they buy another house in TN (the one they live in now). They used the proceeds from NY house to buy 50% equity in 2nd TN house. Now here she is with a fixed ss income (he too) and trying to pay for 2 houses. The 1st TN house has been on market 4 yrs and not even close to selling for the mortgage value. She can't file ch7. The bank won't do a deed in lieu. She can't continue to pay and she is certainly too old and disabled to find employment. What are her options? This isn't a scam to stiff a bank. I'm sure she'd be fine to pay the deficiency if its structured over a long enough period of time, but the bank seems unwilling to negotiate anything and lawyers are telling her horror stories about losing both houses.

Totally off topic but I have a friend (mid 30s) making $70k a yr, boat, jetskis, new cars, atvs, 2 houses, goes to myrtle beach, panama city, gatlinburg every year... He gives a lawyer $3k to file ch7 and had 1 house and $50k in credit card debt vanish. Here my mom is on social security (just off disability), not 2 nickels to rub together and there no help of any kind for her???

In summary, I don't see how her husband can be held liable for her debt, even if TN were a community property state (which its not). The debt was acquired by her before they met. I suppose they could lien against her interest in the 2nd house, but they couldn't force the sale of his interest. Doesn't seem like it would matter what state they lived in.

 

[justalayman]

The 1st TN house has been on market 4 yrs and not even close to selling for the mortgage value.

has she approached them about a short sale?

She can't file ch7.

why?

In summary, I don't see how her husband can be held liable for her debt, even if TN were a community property state (which its not). The debt was acquired by her before they met.

You realize this is new info to me, right? This appears to be separate debt and as you suggest. most likely the husband is not liable for this debt.

I suppose they could lien against her interest in the 2nd house, but they couldn't force the sale of his interest.

I never say never. Every time I do I hear about a bank filing a partition suit so they can force the sale of the property or some action that causes a lot of problems for the debtor. I have not researched your states laws well enough to be able to say there is no way they cannot force the sale of the house because it is shared with the husband. Again, look into tenancy in the entirety. That would prevent a sale for such purposes.