If my rental property goes into foreclosure, is my primary residence protected?

Additional Information:

I own a 1 bedroom condo in Needham and am looking to buy a larger condo. My 1 bed condo is only worth about 25% of what I paid for it.  If I’m unable to rent it after I buy the 2 bedroom, and the 1 bedroom goes into foreclosure, can they take the 2 bedroom from me?  Can I file a declaration of homestead in Massachusetts? Would this help protect my properties?

ATTORNEY ANSWER:

Once again, the answer to your question depends upon the circumstances.  In all likelihood  if your 1 bedroom condominium goes into foreclosure, there will be a deficiency. A deficiency is the difference between what the lender would have received under the promissory note you signed and what the property finally sells for at foreclosure. If your property is only worth about 25% of what you paid for it, your deficiency could be substantial.  Assuming the lender provides the requisite notice to you, the lender would be entitled to sue you for the money that you owe the Lender under the deficiency and could seek to attach and ultimately sell your 2 bedroom condominium to satisfy the deficiency.  If the 2 bedroom is your primary residence, you can file a homestead that will protect you somewhat. With the homestead, the lender that held the deficiency could not foreclose the 2 bedroom to collect the deficiency, but it could still seek to put a lien on the property and when you eventually go to sell or refinance the 2 bedroom condominium you would have to deal with the deficiency at that time. In your situation, you may consider a short sale whereby you negotiate with the lender and seek a release of any deficiency.  The key in any short sale with the lender would be a release of this deficiency debt so that you can move on with your life. Good luck.  

The Needham Real Estate Attorneys at Goldman & Pease provide legal services to individuals and businesses for all real estate transactions in Needham and the surrounding communities including Newton, Brookline, Dedham, Westwood, Dover,  Wellesley, Weston  and the entire Boston Metrowest region.