Bankruptcy or Deficiency?

As a bankruptcy and real estate finance attorney in Charlotte, NC, I meet with many over-extended real estate investors who face the North Carolina foreclosure process. Investors who acquired highly leveraged real estate portfolios may now be facing undesirable choices if they are unable to meet their debt service obligations. Perhaps a construction loan has reached or is past maturity and no source of permanent financing is in sight. Maybe tenants are non-existent at the rates needed to cover mortgage payments.

Regardless of your circumstances, negotiating with the lender to workout a payment plan generally produces the best long-term results. Lenders have the ability to modify mortgages as well as negotiate forberaance agreements. Problems come into play when lenders are unwilling to work with borrowers whose credit scores have taken a hit due to the downturn. Real estate investors who are heavily dependant on leverage are hesitant to further damage their credit score by filing bankruptcy.

However, foreclosures damage a borrowers credit as well. There is also the possibility of a deficiency judgment following a foreclosure action. Institutional real estate investors are often able to negotiate non-recourse loans. If things go south they simply walk away from the property and usually only their equity in it. Smaller, more entreprenurial investors are often forced to personally guarantee their  mortgages leaving them with deficiency judgments post-foreclosure sale.

In a declining real estate market the highly leveraged developer risks not only the property but his or her personal assets as well. Many of my clients find it advantageous to surrender some or all of their real estate portfolio through bankruptcy because the bankruptcy laws protect them from deficiency judgments.

Each foreclosure situation is different as well as the options available coming out of foreclosure. Knowing your options will make all the difference as it pertains to your financial future. Make sure you have access to a knowledgable team of real estate and backruptcy attorneys to help guide you along.

More Stop Foreclosure Tips:

1. Can a charter 7 bankruptcy stop foreclosure?