If my house goes into foreclosure, am I responsible for whatever difference there is between the selling price and the balance of my mortgage?

I am an Active Duty Marine stationed in CA and own a rental property in TX. It was recently broken into and burglarized for over $30,000 that the insurance doesn’t cover. I can’t afford the repair costs and only have enough savings to cover 3 months of mortgage payments. I am looking for a solution to get rid of the house (ie. short sale or foreclosure) but am unsure of the legal and financial ramifications of these actions. Also, am I even able to sell the house if it doesn’t have any electrical or plumbing?

Asked on November 2, 2011 under Real Estate Law, Texas

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

The relevant law would be the law of the state where the property is located (TX), unless there is something in your mortgage agreement specifically selecting the law of a different jurisdiction. Under TX law, lenders may pursue a deficiency judgment: that means that if a property is foreclosed upon and then sold at auction, if the amount it brings in at auction (less certain fees or costs of the auction) is less than the remaining principal balance of the loan, the lender may sue the borrower for any unpaid amounts due.

You probably cannot legally sell a home without plumbing or electric--check local building codes to see if the home could have a certificate of occupancy or be legally used as a residence. (At a minimum, you'd need to disclose this fact: possibly you could sell to a contractor or developer who would rehab the place.)

You can only do a short sale that would wipe out your liabilty for any unpaid balance due with bank approval--you need to talk to your bank about his option.

Note that if the home is foreclosed on and if you are sued for a remaining balance, that debt would be an unsecured debt; which means you may be able to discharge it in bankruptcy.

Good  luck.


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