Dear Liz: I recently lost a rental property to foreclosure, and the lender is after me for the difference between what I owe and the sale price of the property (roughly $58,000). If I am sued, is there any way to get out of this debt without paying?
Answer: If you are sued by this or any other lender, you should consult an experienced bankruptcy attorney about your options. If you can’t afford to pay a deficiency judgment — the difference between what you owe and what the property is worth — bankruptcy could allow you to erase or reduce the debt.
Although some states, including California, protect homeowners from such lender lawsuits, the protection does not extend to rental or commercial property. It can also be waived, inadvertently or otherwise, when a homeowner signs lender documents to arrange a short sale. Anyone who is selling an underwater home or who is in danger of losing one to foreclosure should discuss the situation with an attorney familiar with real estate and bankruptcy laws.