If your Mortgage Company forecloses, your troubles don’t end.
Your credit may suffer for years to come, but most people aren’t worried about the distant future. A more pressing problem can be a deficiency judgment. The bank might bring legal action against you to try and collect what they couldn’t collect in foreclosure.
Deficiency judgment are court orders that make you personally liable for unpaid debt such as when a home’s selling price at foreclosure auction is not enough to cover the loan balance.
Let’s take a closer look at what deficiency judgments are and whether or not you should expect one:
Deficiency Judgment Overview
When you default on a loan and the the house gets sold at auction, the value of the property will almost never be enough to pay off the loan. For example, you might owe $100,000 on your home, but it only sells for $60,000. You’re $40,000 short.
Because the lender wants all of the money back, they may take further legal action against you. Legal action to collect the remaining amount is called a deficiency judgment.
How Much is the Deficiency Judgment?
It will be no surprise that the unpaid debt ($40,000 in the example above) is part of the deficiency judgment. However, lenders can also sue for the costs associated with the foreclosure and pursuit of the deficiency judgment.
If The Deficiency Judgment is Successful
If your lender successfully wins a deficiency judgment against you in court, you will be personally liable for the amount of the judgment. You then will be legally required to satisfy the deficiency judgment, and the lender can go after you if you don’t. This means they could garnish your wages or bank account, or even take personal items (not necessarily your home, car, or other essential items).
Will My Lender Pursue Me for a Deficiency Judgment?
There is no way to know whether or not they will. In many cases, your lender will not go through the trouble but the best way to find out, is to ASK YOUR LENDER. Legal action is expensive and time consuming, and people who just suffered a foreclosure often don’t have the assets or income needed to satisfy a deficiency judgment. If you had the resources, you wouldn’t have missed your payments in the first place. However, there is no guarantee either way. It’s possible they will send you a 1099 for the amount instead. If this takes place, consult with your CPA for assistance.
How do I Avoid a Deficiency Judgment?
Don’t let your house go to foreclosure auction. Try to do a Short Sale first. If you sell it to us, we’ll pressure the lender to put on the Short Sale approval letter that they will waive the deficiency judgment or that they will send you a 1099 for the difference. If they do this, they cannot pursue you for a deficiency judgment.
If a Short Sale fails, pray that the lender if forgiving and smart enough not to pursue someone without money (you).
Last resort is Chapter 7 Bankruptcy, which can wipe out the debt. However, if a Deficiency Judgement is the only reason you’d file for Bankruptcy, your attorney will probably recommend that you wait until you know your Lender is pursuing a deficiency.
To stop the threat of a Deficency Judgement, start a short sale now by calling us at 502-212-2482 or fill out this form:
