Tuesday, December 21, 2010

Got Questions? Get Answers...AR Wants To Protect His Retirement

Got Questions?

Enjoyed your book, but it doesn't address retirees walking away from a home. What assets can a bank pursue if I'm retired & walking away from a home I own in NJ? I've been told retirement money (401K, pension, social security, bank accounts) are Teflon from all except the IRS. Is this accurate? Please clarify.



Get Answers...

Dear Ar:

I thank you so much for your gratitude. I have been learning so much from reader's questions. 

Your questions is: What Assets Can A Bank Pursue If I’m Retired and Walking Away From A Home?

Let’s take this step by step. 

Step #1: If you believe that any asset you have can be subject to a judgment/levy or seizure by a creditor than you must immediately implement asset protection steps in order to place a barrier between a lender and your assets. In fact, asset protection is a preliminary step of a strategic default. Asset protection is the implementation of legal structures, techniques, and strategies that protect and preserve what you earn, what you create, and what you acquire. Remember, a true asset protection technique is always legal. Also understand what asset protection can and cannot achieve? If you owe a debt then asset protection will not completely hide all of your assets from the owner of the debt. Instead, it can provide a defensive shield against the collection of the debt. Please visit this link to get a basic introduction on asset protection. The most important part of asset protection is consulting with a qualified attorney and/or accountant who understands the relevant laws in your state. Also review Chapter 8 of Strategic Default: How To Create A Brighter Financial Future For You, Your Family Or Your Business.

Step #2: You are essentially asking if New Jersey is a recourse or non-recourse state. A recourse state allows a lender to obtain a judgement if the sale of property does not satisfy the debt. A non-recourse state limits or prevents a lender from collecting any money except what is collected from the sale of the property. The laws that limit or prevent a lender from collecting any money except what is collected from the sale of the property is also called anti-deficiency laws. It is my understanding that New Jersey is a recourse state therefore a lender may have the right to collect on the unpaid mortgage balance after your property is sold. Read the following link to learn about debt deficiency, forgiveness, and obligations and the link on recourse and non-recourse states. I advise you to speak with a legal professional who is familiar with New Jersey’s foreclosure laws, debtor-creditor laws, and recourse/deficiency/collection laws.  

Step #3: A lender needs to obtain a deficiency judgment in order to seize assets, garnish wages, or place a lien on your property. A lender does not automatically get a deficiency judgment if a property sells for less than what  is owed. In order to get a deficiency judgment, a lender must file specific papers according to New Jersey state law. After a proper court proceeding, a lender may be granted a deficiency judgment. A homeowner or debtor has the right to challenge in court a lender’s attempt to obtain a deficiency judgment. There are procedural rules a lender must follow in court to sue you if the proceeds from a foreclosure sale do not satisfy the entire mortgage balance. These rules are generally covered under a states recourse or non-recourse laws. This is also covered by each states deficiency or anti-deficiency statutes. Also keep in mind that lenders does not have an unlimited amount of time to sue you. A statute of limitations establishes time limits for when a lawsuit can be filed for a particular type of legal action. If the statute of limitations passes then a lender typically can't sue. Also, a lender does not have to start a foreclosure action. A lender has the right to forgo a foreclosure action and sue for the entire amount of the mortgage loan. This option is employed very rarely however you should be aware. As we always recommend, your should sit with a qualified attorney who can properly advise you of your exposure. 

Step #4: You may be exposed to other liabilities when you walk away from your home. For example, do you have liability insurance on your property. Even if you walk away from your house you are still liable for any damages or injuries while the house is in your name. Many homeowner's allow the insurance to lapse. Homeowner's do not realize that when a lender puts "forced placed" insurance on a property it only covers fire, not personal liability for slips, falls, and theft. The lender only cares about the property nothing else. Also many banks understand the inherent risks of a vacant property therefore the bank may intentionally slow down a foreclosure sale. The local municipality can place fines against you and the property for unsafe conditions or lack of repairs. 

Step #5: As outlined previously, you must start with the premise that a lender has a general right to pursue your assets except for assets that are legally exempt from debt collection. Generally speaking, except for state and federal government, a creditor cannot place a lien on or obtain money from your 401k, pension, social security, SSI, veteran benefits (including survivor benefits), unemployment insurance, public assistance, disability, worker's compensation, public and private pension plans. However, if you pledged your 401k or pension as security for a loan, then the creditor may be able to collect. 

A creditor can use various tools to collect money owed. The lender has the right to garnish wages (normally up to 10% of the paycheck), has the right to put a lien on a bank account and take the cash in the account, (this brings up the rule - Never Keep All Of Your Money In The Same Bank), and has the right to place a lien on your real estate or personal property. 

Please take the time to consider all of your assets and evaluate any risks that can arise. 

Thank you.

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