The answer to this question depends to a large part on whether you live in a state that has consumer protection statutes known as "anti - deficiency" statutes. These statutes are designed to protect the homeowner from being responsible for loans secured by their personal residence when the personal residence is "underwater." An "underwater" personal residence is one in which the principal balance on the loans that are against the property are in excess of the value of the property.
The first thing you must do is check with a local real estate attorney to make sure that your state legislature has enacted laws that prevent banks from suing homeowners for deficiencies. These laws protect single family owner occupied residences.
In California, a strategic default is possible because of enactment of Code of Civil Procedure section 580b. This statute which prohibits a personal judgment against the debtor is set forth below:
A typical example of a legislature enactment is California's Code of Civil Procedure section 580b which provides as follows:
In California, the pivotal part of a strategic default is that the loan is a "purchase money" loan used to purchase his home. Thus a HELOC, home equity line of credit, does not typically fall within the California statute and to default on a HELOC will likely result in a lawsuit against the homeowner for non - payment of the balance.
Like most states that have such legislation, California limits its anti - deficiency laws to residences i.e., "dwelling of not more than four families." Thus commercial real estate properties do not fall within the consumer protection statutes of most states.
While strategic defaults are permissible in many states, depending on the nature of the loan and property, you should consult with an attorney in your state to find out if your state has such statutes permitting strategic defaults and whether or not the statutes apply to you.
So if your personal residence is "underwater" in the state like California and it is secured by a "purchase money" loan, you can safely "walk away" from the mortgage and its financial obligation without fear of being sued by your lender.
Once you made this determination, that you are in an anti - deficiency state and that the anti - deficiency statutes apply to you, your next decision really is one of personal choice. Do you love the house? Do you think the market will recover? Can you afford your mortgage payments?
Strategic defaults, however, are not without consequences to your credit. It is always best to evaluate all factors and to seek legal advice from a real estate attorney in your state.
This is an article by attorney Mitchell Reed Sussman. Mitchell is a California real estate attorney specializing in real estate, foreclosure and bankruptcy.
The first thing you must do is check with a local real estate attorney to make sure that your state legislature has enacted laws that prevent banks from suing homeowners for deficiencies. These laws protect single family owner occupied residences.
In California, a strategic default is possible because of enactment of Code of Civil Procedure section 580b. This statute which prohibits a personal judgment against the debtor is set forth below:
A typical example of a legislature enactment is California's Code of Civil Procedure section 580b which provides as follows:
In California, the pivotal part of a strategic default is that the loan is a "purchase money" loan used to purchase his home. Thus a HELOC, home equity line of credit, does not typically fall within the California statute and to default on a HELOC will likely result in a lawsuit against the homeowner for non - payment of the balance.
Like most states that have such legislation, California limits its anti - deficiency laws to residences i.e., "dwelling of not more than four families." Thus commercial real estate properties do not fall within the consumer protection statutes of most states.
While strategic defaults are permissible in many states, depending on the nature of the loan and property, you should consult with an attorney in your state to find out if your state has such statutes permitting strategic defaults and whether or not the statutes apply to you.
So if your personal residence is "underwater" in the state like California and it is secured by a "purchase money" loan, you can safely "walk away" from the mortgage and its financial obligation without fear of being sued by your lender.
Once you made this determination, that you are in an anti - deficiency state and that the anti - deficiency statutes apply to you, your next decision really is one of personal choice. Do you love the house? Do you think the market will recover? Can you afford your mortgage payments?
Strategic defaults, however, are not without consequences to your credit. It is always best to evaluate all factors and to seek legal advice from a real estate attorney in your state.
This is an article by attorney Mitchell Reed Sussman. Mitchell is a California real estate attorney specializing in real estate, foreclosure and bankruptcy.
About the Author:
Looking to find the best deal attorney to help you with your strategic default, then visit www.losangelesrealestateattorney.com to find the best advice on strategic real estate defaults.
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