Q: We purchased our retirement home in September. We then put our present home up for sale.
It’s on the market for less than we owe and is priced about $10,000 less than others in neighborhood.
We are retiring in October. If we go into foreclosure on our primary residence, can they put a lien on our new home? I’m sure we won’t sell our current home by then and when we retire we will not be able to afford two homes.
A: Do you have to retire in October? Unless this is a mandatory retirement, you and your spouse should not plan on leaving your jobs until you have sold your home.
If you stop paying the mortgage, the lender will put your property into foreclosure and that will trash your credit. In addition, if the lender allows you to do a “short sale” (where your home is worth less than the mortgage), and the lender does not agree to accept the amount from the sale to satisfy the debt, the lender can still go after you for the shortfall.
In other words, you will still owe the lender the missing money from the short sale or foreclosure and could continue to have legal troubles with your current lender. That lender can go as far as suing you and if the lender wins in the suit, the lender can put a lien on your newly acquired home causing you a major financial headache in your retirement years. Since you still have about six months until your hoped-for retirement date, focus on doing what you can to get your current home sold. You may need to make some minor changes or lower the price to make it even more attractive.
If you’ve done all that you can (including hiring a top-notch, aggressive agent), then you’ll need to find a way to keep bringing in income until conditions improve in your neighborhood.
If the real estate market does not improve in your area, you’ll have to approach the lender early on about accepting a short sale and have the lender accept the short sale as full payment of the amount you owe the lender on the loan. You should also attempt to have the lender agree (in writing) not to report the short sale as a negative on your credit report. Instead, the loan should be reported “paid as agreed.”
Feb. 29, 2008