Wednesday, June 30, 2010

KU, An Active Duty Coast Guard Member, Has A Home Defect. Should He Default?


I purchased my home new three years ago, and had a swimming pool installed. This spring my pool collapsed. Estimated repair costs are approximately $30,000. Neither my homeowners or flood insurance will pay a dime. My home has always had drainage issues; and I came to find out that half of my lot was developed on mitigated wetlands, not disclosed at time of purchase by developer/builder. Both developer and pool builder say this is an act of nature and not their problem. I've been trying to find an attorney, but none seem very interested. Any advice? I live in Alabama, and I am an active duty USCG member. How would a default affect me?



Dear KU:

Thank you for contacting me.

If you decide to strategically default then you face certain consequences.

1. It will negatively impact your credit score.
2. Your peace of mind and space will be disturbed by collection calls, letters, and perhaps visits.

3. It will expose you to a possible deficiency judgment. A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note or mortgage loan, in full.

Please read,-Obligations-and-Deficiency&id=3737575 to learn more about deficiency judgments debt obligations, and debt forgiveness.

If you live in a state that does not allow for deficiency judgments then this may not be an issue. A state that does not allow for deficiency judgments is called a non-recourse state. I believe Alabama is a recourse state therefore Alabama may allow lenders to obtain deficiency judgments. There may be new laws in Alabama that protect homeowners from deficiency judgments. Since you are an active member of the coast guard there may be additional state and/or federal protections against deficiency judgments.

You may also consider contacting the bank and telling them about your situation. While the bank may not be sympathetic to your pool problem, they should listen to your “mitigated wetlands” problem. You can tell the bank that the property has a drainage issue and you were not given full disclosure of certain defects in the property. You can offer to give the property back to the bank in exchange for the complete and full satisfaction of all of the debt that is owed to the bank. This is called a deed-in-lieu of foreclosure. This will eliminate any deficiency judgment risk. The key is to get any agreement with the bank in writing.

You would have to look at your original contracts to determine if the builder and/or pool installer are liable. Just because they say it’s not their fault does not mean it is.

You mentioned you were unable to find an interested attorney. I am surprised. You will need a qualified professional to help you. I am sure there is someone who can take your case.

Please feel free to contact me with any questions.

Thank you.

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