Except that if the home is sold due to foreclosure, their credit is still ruined. The foreclosure is on their credit history even if the load is paid off just as late payments are showing up as 30,60,90 et al.



>>The bank can go after the former owners for the rest of their lives and try (probably unsuccessfully) to get the $ from their heirs as well. Unless of course, they file Chapter 7 (which is virtually impossible to do these days). If they file Chapter 11 then the former owners will be paying the bank back for any remainder after a sale or auction for the rest of their lives without the benefit of living in it.
>>
>In some cases the bank will allow the owners to sell the house for below the mortgate value in order to avoid the hassle of going through an auction. (There are a large number of houses in the SF Bay area for sale in this manner.) The owners have three choices.
>
>Bankruptcy
>
>Forgive the difference between the sale price and mortgage value. This becomes taxable income to the owners so frequently they
>
>take out a new loan for the difference and pay it over time. This is probably the best option since it avoids bankruptcy and the interest rate is considerably less than the tax rate