During the foreclosure process, can a bank come after you for anything or is the house the only collateral?

by oliver on September 30, 2010

Question:

During the foreclosure process, can a bank come after you for anything or is the house the only collateral?

Against all advice my friend is foreclosing. Can the bank sue or take legal action against you for anything for other belongings (cars, boats, garnished wages, etc). The house is not worth as much as he owes on the mortgage anymore.

Answer:

In this case, it all depends on the state and the type of loan which is issued to the borrower. If the loan is a non-recourse loan, then the loan company cannot collect on the difference. Therefore, if the house is sold at 100K and there is still a difference of 25K, the lender cannot go after the borrower anymore because technically, the borrower do not owe anything since it has already been settled. However, if it is a recourse loan, the company will have every right to collect for the difference. The banks can also sue your friend for as assets in order to satisfy the debt that your friend owes, as well as the losses incurred by the company. However, they cannot do this if your assets are protected by bankruptcy. An example of a recourse loan would be a HELOC or a Home Equity Line of Credit. If your friend has this kind of loan, the the lender can seek your friend in order to recover the difference. In order for you to understand this situation fully, you must contact a real estate attorney. This way, you will be able to learn whether or not you need to pay the difference after the sale of your property.

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