There are a lot of homeowners, and income property owners, who are having to seriously consider "walking away" from their properties by letting them go to foreclosure or by doing a short sale. What they may not understand is that depending on their state's laws, and whether there are second and third mortgages on the property, they may still be on the hook later for a "deficiency judgment." This article on Yahoo's site explains the problem.
Many times the lenders don't bother getting such a judgment, but if they do in California, it's good for up to 20 years, and can attach as a lien against your other real estate. You may not have equity in your other properties now, but if you manage to hang on until you do, and there's a judgment, you'll be paying that off years from now at 10% interest, so it's worth investigating now to see what you can do about it. Bankruptcy and debt negotiation are among your options. I can remember a client from several years back who went through this situation in the early '90's, then discovered a deficiency judgment in 2003 when he was in escrow to sell his formerly "worthless" property and had to negotiate quickly with the bank.
So, if you're in the unfortunate position of considering foreclosure or a short sale, talk it over with an attorney first.
And, if you're in the unfortunately position of holding a note secured by property that's now underwater, talk to an attorney about preserving your rights to a deficiency judgment--it could pay off years from now.
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