Retirement accounts, mortgage delinquency and wage garnishment
Q: I am employed but delinquent on my first and second mortgage with a certain bank. I am more than $80,000 under water and haven't paid a dime for the last 4 months. If my house is foreclosed, can bank go after my retirements accounts? I have both 401(k) and Roth IRA. Can it garnish my salary?
A: Your retirement accounts are safe. Either with bankruptcy or foreclosure, lenders can't touch retirement investments, be it IRA or 401(k).
With a garnishment and mortgage delinquency, you may have a problem, but it depends on your state laws. Most of the first mortgage loans are non-recourse, meaning that your lender can't come after you for any remaining balance - see more about recourse mortgages. However, the second mortgage, either fixed loan or home equity line of credit is normally a recourse loan. That means the lender can go to court and get a deficiency judgement against you and then obtain wage garnishment. While this does not happen too often, that is not a very comforting position to be in. Theoretically, your wages can be garnished until you pay off that second mortgage, fees and penalties.
You may want to contact your bank and try to work things out. Negotiate a loan modification and I know, it can be very long and difficult process, or a short sale. With a short sale, make sure that bank agrees in writing to forgive any unsatisfied mortgage amount.
The other thing you can do is to talk to a local lawyer who specializes in short sales and foreclosure negotiations. They can often help you stay in the house for up to 2 years without paying mortgage. If you go this road, ask how much business they do with this bank, because it could be important. Also keep in mind, such lawyers charge very substantial fees.
Tue Mar 8, 2011 10:03AM | Copyright: www.bad-credit-advisor.com | More in Mortgage | Comments (0)
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