Can Banks Freeze Your Assets on an Investment Foreclosure?

When you fall behind on the mortgage payments for your investment property, you may face foreclosure and the consequences it brings. Not only will foreclosure damage your credit, but it will also put your primary home and other assets in jeopardy. In some states, your lender may be entitled to any real estate, vehicles and bank accounts in your name.

Deficiency Judgments on Investment Homes

A foreclosure does not automatically allow the lender to freeze your assets. However, a deficiency judgment gives the lender the authority to collect the money you owe on the loan. State laws vary regarding deficiency judgments. In some states, deficiency judgments are not permitted at all; other states reserve deficiency judgments solely for investment properties. Deficiency judgments are more likely if the home is foreclosed judicially. To obtain a deficiency judgment, the lender must file a suit against you, separate from the foreclosure. It is important for homeowners in foreclosure to know their state laws.

Enforcing the Judgment

A deficiency judgment is a court order requiring you to pay the debt. If you do not have the money available to pay, your assets may be at risk. In some states, including Florida, a lien can be placed on your primary residence. Your vehicles and bank accounts may also be seized. Depending on your state's collection laws, your pay may even be garnished if no other collection methods are successful.

Rights as a Landlord

If you are renting out the investment property, the tenants are allowed to remain in the home during the foreclosure. Landlords are not required to disclose foreclosure information to the tenant. As long as you have a verbal or written lease agreement, the tenants are legally bound to continue making payments each month. If your tenant fails to pay, you can begin the eviction process. Foreclosure can be a lengthy process in some states. The redemption period can be used to extend the foreclosure by as much as a year, depending on your state.

Avoiding Foreclosure

A deficiency judgment can be avoided by acting fast to stop foreclosure. There are a variety of options available to homeowners. Refinancing, reinstating or modifying the loan, or requesting a forbearance can prevent foreclosure. If you cannot keep the home, consider selling it in a short sale or giving up ownership through a deed in lieu of foreclosure.

References

• United States Foreclosure Laws: Florida Foreclosure Law
• Deficiency Judgments: How a Deficiency Judgment Can Effect You the Homeowner
• Foreclosure Law Firms: Foreclosing on an Investment Home
• Nolo: Renter's in Foreclosure - What Are Their Rights?
• Michigan Tenant Counseling Program: How Mortgage Foreclosure Affects Tenants

Resources

• HUD: Avoiding Foreclosure