When Borrowers Default on Second Homes

With the high number of second homes here on the peninsula this topic should be particularly interesting to many. Today we are talking about Strategic defaulting – where the homeowner has the ability to pay the mortgage, but chooses to stop making payments. Among affluent homeowners with second homes and investment properties, this is increasing.

•    Homeowners who strategically default are likely to find their credit will be negatively impacted and they should expect to be prevented from getting another mortgage loan for 7 to 10 years.

•    Many homeowners are concerned about the possibility of the lender suing for the amount of money owed on the loan when a house goes into foreclosure.  Whether or not the lender has legal justification to do so depends largely on where the property is located.

•    In “recourse” states, a lender can go after the homeowner, and usually other assets like a primary residence, for the full mortgage amount.  Examples of recourse states include Maine, New Jersey, and Hawaii.

•    In “nonrecourse” states, a lender agrees to accept whatever the property fetches at a short sale, foreclosure sale, or deed-in-lieu, and generally can’t sue for the full loan amount.  Florida, Connecticut, and Arizona are among the nonrecourse states.

•    California is in a third category called “single-action” or “one-action,” which allows the lender either to foreclose on the owner or file a civil lawsuit for the full loan amount.  Other single-action states include New York and Idaho.

•    Homeowners should be advised that even in a nonrecourse state, those who opt for a strategic default on a previously refinanced property may not be protected from lenders, because the mortgage is not in accordance with a first purchase.

•    Although California is a single-action state, lenders can still sue homeowners for repayment of a second mortgage or home equity line of credit.

We’re going to look at all condos today as these constitute many of the 2nd homes here on the Peninsula.

15 SPANISH BAY CIRCLE, Pebble Beach MLS #: 81025267 $2,700,000 Beds: 3 Baths: 4 (3/1)
Fabulous...Fabulous... Front line unit ... Golf course, ocean, crashing surf,  that is all you see!  What a view!!  Enjoy the amenities of Spanish Bay from your very own unit.  SqFt: 3,567

47 DEL MESA CARMEL , Carmel Valley MLS #: 81054184 $649,000 2 Baths: 2 (2/0)
Views! Views! Dramatic ocean, golf course, Carmel Valley & Santa Lucia mountain views from this nicely updated Del Mesa "B" model condo, 2 bed, 2 bath with den.  New kitchen appliances & countertops, carpet, tile, paint & deck plus countertops & sinks in baths. Complete with washer & dryer and attic access.  Large sunny south-facing deck.  Prestigious 55+, gated, active adult community.  SqFt: 1,469

15 OCEAN PINES LANE, Pebble Beach Active MLS #: 81036881 $500,000 Beds: 2 Baths: 2 (2/0)
Views abound from this condo in Ocean Pines. New carpet, paint, wet bar.  Patio off living room and master bed with crashing waves below.   SqFt: 1,272

14 SKYLINE CREST, Monterey MLS #: 81021350 $495,000 Beds: 3 Baths: 2 (2/0)
Attractive condo in sought after Skyline Crest complex Monterey. Preferred location backs up to the forest. Enjoy the city lights and forest views from this well maintained home! Coveted Skyline Crest is centrally located in Skyline Forest and is close to everything the Monterey Peninsula has to offer.  SqFt: 2,040

(c) Patty Ross, KRXA Radio Show #189  January 7, 2011