"In the US, if the loan is underwater, i.e. the loan now exceeds the value
of the house and the owner gives the keys to the bank, they are STILL
responsible for the balance---UNLESS they file bankruptcy under Chapter
7 for example (straight liquidation), then the debt is dischargable.
Married to bankruptcy attorney, Mike"
My understanding is that the above is generally correct if they give the
property back free and clear of any other junior or subordinate liens
(taxes, mechanics liens by contractors, etc.). In the event other liens
exist a deed in lieu of foreclosure is insufficient and a foreclosure action
may be required to clear the title. In the US the right, and the conditions
to be met, for a real estate deficiency collection/judgment (and also any
redemption right following foreclosure) is dependent on State law. Just to
make it fun, most of them are different. See
http://www.cga.ct.gov/2010/rpt/2010-R-0327.htm. Then of course to make it
more interesting, figure it all out when the RE is in one jurisdiction and
the lender in another, and possibly the debtor skips to a third....
Also in my experience, as the deficiency is an unsecured debt, it can
usually be discharged under chapter 13 as well as chapter 7, if in a State
that allows judgment and execution on a RE deficiency making said bankruptcy
necessary.
Not an attorney, nor am I married to one, but I've paid a bunch of them
enough over the last 35 years to support several wives.
Daryl Hurley
www.darylsphotos.com
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