Home Buddies - Houston Credit Repair Coach for Investors and Homeowners

What about the Foreclosure debt?

Deficiency Judgment. Those words alone can sound so harsh to a homeowner that is facing the loss of their home that has just been foreclosed on. They are worried about having to pay the difference to the mortgage company, and even the possibility of the lender going after their other assets.
Usually a homeowner is not sued for a deficiency judgment after they have lost their home to foreclosure. But because the credit and finance industry is so complex, it is often difficult for those homeowners to understand how mortgages really work and what happens with all the aspects of a foreclosure, including the debt.
The deficiency judgment is the amount remaining towards your total balance of your mortgage loan amount, minus the amount that the lender received from the foreclosure sale of the home. Each state has its own laws governing deficiency judgments. Be sure to check with your state to see if it is an anti deficiency state (no deficiency judgment is placed). If your state does not allow for deficiency judgments, then there usually is no reason to worry about having something repossessed or having your wages garnished.
So, what if there is a deficiency judgment placed upon that homeowner? Will the homeowner really owe the mortgage and judgment? Remember that the lender is trying to collect on a debt that is secured by real estate.
If there is no equity and the property goes to the foreclosure sale, and the lender receives less than what is owed, the lender can pursue the judgment or issue a 1099. This still holds true even if it is the lender who gets the property at the foreclosure sale, and ends up selling it later at a loss. At the foreclosure auction, sale proceeds are used to pay off any liens on the title. The homeowner’s debt just did not magically appear because their home foreclosed and was sold at auction. Their debt was already established as the original mortgage on the property. And because the homeowner has defaulted on that debt to the lender, the lender is trying to satisfy the debt that already exists as the mortgage. The judgment that the lender is usually granted against the homeowner is simply a judge’s decision that has recognized that the lender is owed a certain amount of money and that the owners have not paid it.
If your home foreclosed in the first place, it usually was the result of a financial situation that the homeowner was in, so the lender usually realizes that placing another financial judgment against the homeowner, will not help the lender recover any lost profits. The lender realizes that it would be a futile effort in attempting to pursue a deficiency judgment after foreclosure. They can understand how difficult it would be for them to try and collect payment from the homeowner, and how long it would take to accomplish. And they can realize how it will cost them more time and money to pursue the deficiency through all the legal aspects of the process. It would be more productive for the lender to spend that time and effort and money towards new loans and investments.
Basically a homeowner usually doesn’t need to worry about being sued for deficiency judgment after the foreclosure, even if the foreclosure laws allow it, because most lenders just don’t do it. But keep in mind, that they certainly can pursue it in some states. So always be prepared to seek legal advice as well.
NOTE: A deficiency judgment will affect the homeowner’s credit report just as any other judgment would.

Good luck.

Barbara Partaka

Home Buddies