I want to foreclose or short sell my main residence. Will the bank go after my 2 investment properties?

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On my main residence, I have a 6.5% interest only mortgage with Wells Fargo. My mortgage rate will jump up 2% in a year from now, and that will make it impossible for me to pay for my mortgage.

I tried to do a loan modification under the HAMP program but it was refused since they caught that I had 2 investment properties with equity on them…

Now, if I decide to foreclose or short sell my home, will the bank go after my investment properties?

How can I protect myself better?
I live in California, that’s a non recourse state.
Could I transfer the titles of my investment properties to someone else? Maybe my wife’s corporation?
How about transferring the titles of my investment properties to family members, such as my inlaws?

5 Comments
  1. Reply
    Kelle
    April 30, 2011 at 12:42 am

    Yes. i don’t know.

  2. Reply
    golferwhoworks
    April 30, 2011 at 1:39 am

    absolutely they will. I would refinance the investment homes and take enough cash out to pay down and then refinance my main home and that gets you out of the arm
    I am a mortgage banker in TN
    Update.
    Are you prepared to pay gift taxes on these transactions. If you owe on these investment properties it will trigger the due on sale caluse when you do transfer so the notes are then callable and you must satisfy them.
    If the lender finds out you did this shady act just to stiff them you can bet they will come after you with 10 lawyers to make an example out of you. Not a wise move at all to try to transfer these properties at all

  3. Reply
    Ryan M
    April 30, 2011 at 2:28 am

    They can if you live in a recourse state. If you do not live in a recourse state, you will simply be taxed on the money that you stiffed Wells Fargo for. Didn’t common sense tell you that getting an interest only loan is about the dumbest thing you could do??? (Sorry….a bit harsh, but interest only loans and ARM are responible for the housing bubble and tick me off. If they were never offered, you would not be in this situation and neither would most of the country)

    UPDATE:
    Since you live in CA, you will be taxed on the outstanding balance plus they MIGHT be able to put a lein on the investment properties if they can show that you made paying the investment properties a priority over the main residence.

    UPDATE #2:
    Transferring the title would actually be VERY dangerous becasue that would be an act that would “pierce the corporate vail” and your wife would basically lose out on ALL of the protections of an LLC…..not just for this transaction, but for EVERYTHING. I’m sorry, but one way or another this is not going to be a pleasant experience. There is a chance that they will not touch those properties, it just REALLY depends on how nasty the lender wants to get and how much money they will be losing.

  4. Reply
    Doctor Deth
    April 30, 2011 at 2:39 am

    protect yourself by selling your investment properties – a primary residence is more important
    why on earth did you ever get an interest only loan? didn;t you analyze your budget 3-5 yrs into the future to see what effect the rate increase (that you knew was coming from the start) would have on your finances?

    you can’t “transfer” a title if you have a mortgage on the property and if you have no mortgages, then you shouldn’t be thinking about foreclosing on anything and “transferring” real estate triggers real estate transfer taxes and other “closing costs” ($ 1000’s)

    That makes no sense that you had an interest only mortgage on your primary residence when you had 2 investment properties – that probably required a substantial down payment and normal mortgage

    there is no protection – you better put those properties on the market now and hope they sell by next yr

  5. Reply
    goz1111
    April 30, 2011 at 3:33 am

    While CA is a non-recourse state , there are some exceptions like a 100% interest only loans maybe not classified non-recourse

    But assuming you home loan is non-recourse if the lender forecloses then thats it, the wacky thing is even if you loan is non-recourse the lender in a short sale can require you to sign a promissory note for the difference to do the deal leaving your only option foreclosure

    with all the property at stake have a lawyer review the facts

    transferring the property will not stop the a claw back suit under fraud

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