Protect your money in foreclosure if you own two homes

Most states don’t protect the property owner from deficiency balances that take place after the rental property is sold or foreclosed. A deficiency balance is the amount owed after a property is sold.

The lender will determine whether it is worth it to sue you for the deficiency balance. That will depend on the state in which you reside and the amount of the deficiency.

You should make a good faith effort to modify your mortgage loans before foreclosure. Even look into a short sale if the property value is less than what you owe. While your credit score could still take a hit, at least you will have the opportunity to avoid the extremely negative “foreclosure” mark on your credit report.

Tread carefully with any short-sale agreement. Lenders have very strict guidelines before approving one. Credit unions and traditional banks may require that you agree to pay the deficiency balance remaining once the property is sold. That could be a sizable amount of money and could push you into bankruptcy.

Is your money safe?

In general, if you have a mortgage loan and checking account with a traditional bank, and you fail to make your mortgage payment, the bank cannot take money directly out of your checking account. The bank must follow the normal procedures of suing you and getting a judgment. Then it needs court approval before taking money directly from your account.

Be very careful regarding the type of bank account you have with the traditional bank. The type of debt determines your risk. If the debt you have with a bank is considered to be “business debt,” regardless of whether you have personally guaranteed the debt, then a bank can take money out of personal or business checking accounts more easily. Discuss this with a seasoned bankruptcy attorney.

Credit unions don’t have to follow the judgment process and can take money directly out of your checking, savings, money market and possibly your IRAs. You must act immediately.

The safest approach is to close down all checking, savings and investment accounts when you have delinquent credit accounts. Don’t fool yourself into thinking the bank will consider the length of your relationship with them.

If the debt you have with a bank is considered to be “business debt,” regardless of whether you have personally guaranteed the debt, then a bank can take money out of personal or business checking accounts more easily.