For people that are going through foreclosure and have the assets to pay for any deficiency judgement, how can they protect those assets?

  • Cash
  • Investments
  • Other properties
  • Businesses

I am not looking for morale direction, I am looking for tips of capital preservation.

So far, I gathered that:

  • Retirement accounts are off limits
  • Accounts/properties/businesses in Joint-Ownership as long as the property during the foreclosure is not joint, are also safe.
  • Do you live in a non-recourse state? If so, then after the lender forecloses on your property they cannot sue you for the remaining balance of your loan. (Alternatively they could choose to not foreclose on you and simply sue you for the entire balance, but I've never heard of that happening.) Beware, however, that any part of your balance not covered by the lender's eventual sale of your property (and not pursued by them from you in court) may be considered "forgiven debt", which is taxable income. – dg99 Mar 17 '16 at 19:37

You should talk to a bankruptcy attorney local to you. While bankruptcy laws are federal, there are a variety of local rules. As an example in CA, I've heard of a trustee going after a debtor's IRA account. Retirement accounts are generally off limits, but not always.

Additionally, structuring your assets for the purpose of shielding them from creditors after the start of foreclosure proceedings may constitute fraud. At the very least that may open those assets back up to your creditor(s).

  • 1
    +1 re the appearance of fraud being a significant hazard if you actually need these answers. Another reason to get legal advice, whether you think you can afford it or not. – keshlam Mar 17 '16 at 18:20

Find out whether your state has a homestead law or something similar, which might protect your primary residence during bankruptcy. You may have to explicitly register to receive that protection; details differ.

Frankly, you'll get better answers to this sort of question from an agency in your area which deals with folks at risk of of bankruptcy/foreclosure/etc. They should know all the tricks which actually work in your area. Hiring a lawyer may also be advisable/necessary

  • Note that (at least in my state) a homestead does not shield a mortgaged property from foreclosure (which is what the OP asked about) if you fail to pay the mortgage, it prevents it from being seized to pay other debts in bankruptcy. – jamesqf Mar 17 '16 at 18:58
  • @jamesqf: I believe that's true, but it might let one juggle money to save the house while losing everything else... – keshlam Mar 17 '16 at 21:17

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