What is the process in handing back a rental property to a bank?

I owe approximately $10K more than my rental property is worth. It has a high negative cash flow. I can’t afford to make loan payments any longer. Can the bank come after me for the loan diffrence? It is in NC; I live in CA.

Asked on November 9, 2011 under Real Estate Law, California


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

1) There is no "process" for handing property--whether investment, commercial, or primary residential--to a bank, since there is no "right" to do this. You can contact the bank and see if they will voluntarily take the property back, whether in exchange for forgiving the balance of your loan or simply to avoid a foreclosure action, but they are not required to do this. If they agree to do it, they and their attorneys can guide you through the paperwork, though you'd be well advised to retain an attorney of your own.

2) Since the property is in North Carolina, North Carolina law applies--it doesn't matter where you live. North Carolina allows what's called "deficiency judgments," so at the lender's option, they could pursue you for the difference between what you owe on the loan and what the property brings in (after being handed back or foreclosed) when it is sold at auction.

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