Legal Question in Real Estate Law in California

Re: Letting go of a rental property-still pay property taxes?

The first thing to do is to make sure that you are not "cross-collateralized". I mention this because you say both loans are with the same lender, and sometimes the lender will cross-collateralize, which simply means a default on one property loan is equivalent to a default on both property loans. I am puzzled by your reference to not getting into trouble with the "government"; if you are referring to property taxes, those are paid to the county and if the property is foreclosed upon those will be paid by the lender or whomever purchases at sale--do not pay them, as you will be throwing the money away. If you are talking about the IRS, if the lender forecloses, the extinguishment of your loan will be treated as "income" or forgiveness of debt on your taxes for the year in which the foreclosure takes place. With respect to insurance, if you have tenants living in there, it would be foolhardy not to keep coverage until after the foreclosure. You should also know that if the loan on the rental is NOT purchase money, the lender can elect to do a judicial foreclosure ( this is a lawsuit for foreclosure) and obtain a deficiency judgment if the property is not worth the amount of the loan on it; if they elect to do this and get a judgment, they can collect from any source, including your home and your wages.