Surrender a home that has lost value?

Why surrender a home in bankruptcy? Because you owe alot more than the home is worth and have personally guaranteed the mortgage. Why Surrender a home in California, Florida or Nevada in bankruptcy? Because you owe a hell of alot more than the home is worth and have personally guaranteed the mortgage. Sad to say, but California, Florida and Nevada have all been particularly hard hit by the housing crisis. Unfortunately, while housing prices have dropped, mortgage balances remain intact and homeowners are left holding the bag.

Basic knowledge of the foreclosure process is helpful to understanding the strategy behind surrendering a home in bankruptcy. Foreclosure laws vary by state. California and Nevada are primarily power of sale foreclosure jurisdictions meaning that a bank can take back a property more quickly than in judicial foreclosure states like Florida. If you would like to learn more about the timing of foreclosure, click here. But, for our purposes, let’s keep it simple: you can’t afford the mortgage……you fall behind on payments……..your property values have plumetted……the bank forecloses…….they sell your house at auction. If the foreclosure sale price does not cover the balance owed on the mortgage, you’ll owe the bank the difference. That’s right, even after the bank has foreclosed on your home, it’s possible to still owe payments on the mortgage. This is where the personal guarantee comes into play.

Let’s say for example that your house sells for $250,000 at foreclosure but you owe $450,000, a realistic scenario in some California, Florida and Nevada cities. The bank can them come after you for the $200,000 shortfall by filing a lawsuit seeking a deficiency judgment. Filing for bankruptcy completely changes the equation. Surrendering a home in bankruptcy will negate your personal guarantee on the mortgage and prevent your lender from seeking additional payment once you have given them back the keys.

To learn more about the bankruptcy process in your jurisdiction, contact a bankruptcy attorney.