From: Marek Williams 
Newsgroups: misc.invest.real-estate
Subject: Re: Defaulting on a mortgage
Date: Tue, 02 Mar 2004 17:49:30 -0800

On 2 Mar 2004 17:05:40 -0800, wackyjacky@hotmail.com (Wacky Jacky)
dijo:

>Hypothetical situation that I'd like to understand:  If I have a $800K
>mortgage on a $1MM house, and the house's value drops to say $750K,
>and I decide that I don't want the house anymore, what can happen?  If
>I walk away from the house, and the bank sells the property at value,
>the bank is still out $50K.  Can they come after the borrower for the
>$50K, and liquidate my other assets (stocks, e.g.) to pay for their
>loss?  I suppose if I'm broke I can declare bankruptcy and be on
>horrible credit for 7 years.

First, a bankruptcy stays on your credit report for ten years, not
seven. After ten years federal law requires credit reporting agencies
to stop reporting it.

As for your other question, what you are asking about is a deficiency
judgment. That is a state-specific question. In some states they can't
get a deficiency judgment against you if it is a personal residence.
In some states whether or not the lender can get a deficiency judgment
is determined by the type of document (e.g., mortgage, trust deed,
land sales contract). In other states the deficiency judgment is
allowed unless the creditor is the seller. In other states all
creditors can get deficiency judgments. In yet other states no one
can. In short, there are too many variables to answer your question.
You need the advice of a local real estate attorney.

>Are there ways to protect my non-real estate assets from the mortgage
>creditor?

Not without committing fraud. If you commit a fraud against a lender
it gives the lender the right to ask a bankruptcy court not to
discharge the debt. Fraud is also a criminal act.

Having said that, if the lender cannot get a deficiency judgment
against you (see above), then all your other assets are automatically
protected; that is, the lender's sole remedy is the collateral.

Good luck!

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