Coping with an Upside Down Mortgage: Handling the Property During Foreclosure

Coping With Upside Down Loans: A Legal Perspective

If you or anyone you know is faced with losing their home, the information available on this site is a must read.

Plus you’ll find unique resources such as Steve’s e-book, Coping with Upside Down Real Estate

Handling the Property During Foreclosure

For those facing foreclosure, how the property should be handled is of great concern. From rent collection, to insurance, to taxes, it’s important to know what your rights and obligations are in order to protect yourself and avoid any additional liability.

1. Rent – If the property is rented, the tenant has a contractual obligation to pay rent to the owner. Often, once a tenant becomes aware of the pending foreclosure, he may decide not to pay the rent. The Owner can evict the tenant but the Court will not likely give you a money judgment against the tenant if you’re not paying the loan. So that’s a lose-lose result. Better to cut a deal with the tenant and get some money rather than none. Lenders generally have a right to collect the rent themselves but they rarely exercise this right.

2. Insurance - Keep the insurance in place. If the property burns down and you don’t have insurance, the lender can get a judgment against you for the whole debt. You don’t want this.

3. Taxes - Property taxes are a senior lien on the title. If the owner doesn’t pay the property taxes, the lender will probably do so and will have an additional claim against the borrower. Generally, taxing authorities do not go after the owner.

4. Maintenance – Once there is a default, the borrower is still obligated to maintain the property. Many communities have nuisance laws which require the owner to keep the property looking good so as to not diminish the appearance of the neighborhood. Fines of up to $5,000/month are not uncommon.