If you obtained a cash out refinance what happens when it ends up in foreclosure?
Dec 19, 2009 in
Financial and Loan Tips
bailey7
Example: You refinance with $200,000 cash out & house appraises at $650,000. The loan is $520,000. Value of property drops to $450K so you can’t refi; the cash has been spent & now it is going into foreclosure. What will bank do?
Example: You refinance with $200,000 cash out & house appraises at $650,000. The loan is $520,000. Value of property drops to $450K so you can’t refi; the cash has been spent & now it is going into foreclosure. What will bank do?
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4 comments
src50 on December 20, 2009 at 9:00 am
The bank will foreclose – just like any other foreclosure. The “cash out” refi has nothing to do with it.
I Buy And Sell Houses on December 22, 2009 at 10:39 pm
Same as with any other foreclosure.
It’ll foreclose. It now owns the property, currently worth about $450,000.
It’ll determine the value of the property through a BPO (broker’s price opinion). It will then list the home with a Realtor, probably for a price around the BPO. Assuming your estimate is correct, the BPO would be around $450,000. Then, on a regular schedule, it’ll drop the price of the home. For example, perhaps every 45 days it’ll drop the price by $10,000. At some point, someone will come along and buy it.
As for the owner of the home, the foreclosure transfers ownership of the home. And it’s a black mark on the owner’s credit. Once the foreclosure occurs, the owner no longer has a right to live there, and must move.
Landlord on December 23, 2009 at 5:07 pm
They go after your other assets, accounts, property and wages until you have repaid all of the money they gave you, interest on it and the legal expense of getting their funds returned to them.
Eventually you will pay them back.
v b on December 26, 2009 at 6:33 am
From the bank’s point of view, the have a loan for $520K and property worth $450K, so they have a bad debt against you for $70K. They can sue you for the difference or issue you a 1099-C for $70K.
From your point of view, you sold the house back to the bank for $450K and have cancelled debt income of $70K. You calculate your gain/loss on the property using the $450K number. You can have taxable income from both.