Is a 401K at risk if you have real estate that is foreclosed on?

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Is a 401K at risk if you have real estate that is foreclosed on?

I own my home in NJ (paid for). In 2005 I bought 2 condo’s in FL to flip but the market crashed and is now worth 60% less. Had to rent them but rent only covers 50% of expenses (mortgage, insurance, assoc fee’s, taxes). I’m falling behind on the mortgages and can’t re-fi (I have a 3.5% ARM). Falling behind on mortgage;, can’t continue. I’m on Social Security and do part-time real estate (not making any money). I have a very low 6 figure 401K (which I’m trying not to touch). What happens to it in foreclosure? Can they take it? Put a lein on it? Is it protected?

Asked on October 26, 2010 under Real Estate Law, New Jersey

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

What you are afraid about is that you are going to have a deficiency judgement and that they are going to come after you for the money and attach your 401K.  Generally, retirement accounts are safe from creditors.  But what you need to do at this point is to get rid of those condos and try and negotiate the deficiency judgements - i.e., get them waived.  Have you spoken with the banks about short sales or a "deed in lieu of foreclosure" which means that you will sign the houses back to the bank before they foreclose and before you owe so much to the association for fees (remember to negotiate the deficiency as well)?  You need to act now.  Good luck.


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