Consequences of Foreclosure for Landlords

[Steve Burt]

Hi, I have been researching this online but have not found a definitive answer. I will try to keep the question simple though I think there are a couple of scenarios (whether you own a rental via an LLC or without one, whether you use conventional or FHA loans).

If you purchase a duplex, with let's say 10% down. You make payments for a couple of years, but then a recession happens and the value of the home is much less than the remaining mortgage, so you opt for foreclosure. Could the bank pursue other money (IRA, 401k, taxable brokerage account, savings, checking etc) to try and recoup what they owe? Would that very by state, I am in Texas.

Additionally would this foreclosure ruin your credit even if the property is in an LLC?

Thanks

[Joe Splitrock]

@Steve Burt I don't see having 20% into a property in most markets as at all risky. It is very unlikely to see property values drop that far. Also keep in mind that during the great recession, when property values did fall 20% or more in some markets, that rents stayed higher in most cases. Most the people who went into foreclosure were speculating, rather than buy-and-hold investing. 

It seems like you are a risk adverse person, who is trying to plan for worst case situation. Honestly your bigger fear should be tenants. More landlords have been driven out of this business by bad tenants, than by recession.

The reason I like real estate is because I am in control. My actions as a landlord have more effect on my success or failure, than the economy. People who are not comfortable with that reality should just put their money in index funds or some other passive investment.