Why A Duplex Foreclosure Can Haunt You For 26 Years

One of the biggest fears any of us face in life is fear of the unknown. I see it almost every day in myself, as well as the Minneapolis duplex owners, sellers and buyers I work with.

I believe it’s this very fear that keeps duplex owners who are facing foreclosure from going forward with a short sale.

At first, they tell they don’t want to go through the process, and would prefer to just let it go back to the bank.

And yet, when I question them further, I always discover they simply don’t know the facts about a short sale.

Last week I had the opportunity to visit with Jeff Nycklemoe, a short sale and foreclosure attorney who has helped a number of my duplex sellers through the short sale process. And he told me something that should scare distressed property owners even than their fear of the unknown; a second mortgage or home equity line of credit on a property not only survives the foreclosure, but can haunt the former owner for as long as 26 years.

When a duplex goes back to the bank, the lender who held the first mortgage on it is given the keys. The lender who had the second mortgage is left with nothing.

As a result, most second mortgages contain language that allow them to pursue the amount they are owed, in full, for as long as six years after the default happens.

They may not pursue the this year. Or next. Or even the year after that.

Nycklemoe believes, however, that many of the lenders may be waiting until the economy recovers to pursue the debt. At that time, many of the former duplex owners may be faring better financially, and more able to pay.

Foreclosure impacts credit for seven years (but is permanently on your credit report). Imagine drawing near the end of that time, in the sixth year, and beginning to dream of buying a property again. Just then, the debt collector for the second mortgage shows up and demands the full amount owed.

If the former duplex owner doesn’t have the cash, the lender can go to court and win a judgement. That judgement then appears on a credit report for 10 years.

Worse yet, while it’s unlikely, that creditor may then renew the judgement for another decade!

This, of course, in addition to the potential tax consequences a distressed duplex owner may face with the Internal Revenue Service.

If you’re a duplex owner facing foreclosure, please learn all the facts about what your options are. That way, your fear of the unknown can be transformed into knowledge, and you can make informed decisions that help you toward a brighter future.

If you need help finding a resource for a duplex loan modification, or want somebody to either sound it out with or help you through it, I am always here to help.