Being Sued for a Deficiency Judgment After Foreclosure

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Although the topic of deficiency judgments has been on the internet, it is one of the most commonly asked questions that homeowners have regarding losing their homes to foreclosure. One reason for this, of course, is the fact that home values have decreased nationwide, and foreclosure victims know that their properties will not sell at the county sheriff sale for an amount that will pay off the loan in full. Therefore, they are worried about having to pay the difference to the mortgage company, and the possibility of the lender suing them after foreclosure and going after their other assets. However, in nearly all cases, there is no danger of former homeowners being sued for a deficiency judgment after they have lost their homes to foreclosure.

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How is Being Sued for a Deficiency Judgment After Foreclosure

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To understand how the deficiency is created in the first place, it is necessary to know how the foreclosure auction works and what happens to all of the liens affecting the property. When the sheriff sale of the house is conducted by the county sheriff, the sale proceeds are used to pay off any liens on the title. Most of the time, it is the first mortgage company that purchases the property at the auction, and they bid the minimum amount required by law to take ownership. In effect, they are using their own money to buy the home at auction to pay off their loan to the homeowners. But they do not pay off the entire amount of the loan unless necessary, which will created a difference between what is owed on the house and what is actually sells for at auction. Just because the proceeds do not pay off the entire amount of the mortgage, however, does not mean the former homeowners are automatically responsible for coming up with that difference.

To be responsible for the difference at all, the state foreclosure laws will have to allow the bank to sue the foreclosure victims for a deficiency judgment. Not all states allow this in all cases, so homeowners need to do some research under what conditions a lender in their state can sue after the foreclosure. If the state does not allow for deficiency judgments, then there is no danger at all of being responsible for the difference, and no reason to worry about having the car repossessed or having wages garnished.

Even if they are allowed to sue the homeowners, though, banks rarely go after a deficiency judgment. Just as the foreclosure victims are worried about how they would ever pay tens of thousands of dollars in judgments, the mortgage company is worried about how they would ever be able to collect it and how long the process would take. Foreclosure victims usually go into foreclosure because they lost income, so getting another judgment against them will not help the bank recover any lost profits. In fact, pursuing a deficiency judgment after foreclosure will often prove to be an exercise in futility for both the mortgage company and the homeowners.

Ever further, it will cost the bank more time and money to hire local attorneys to sue their former clients, and then try and collect on the judgment. All of these legal and collections-related expenses are resources expended before the bank can collect even one penny of the debt. Combine this with the fact that they know the homeowners had some financial hardship that caused them to miss their mortgage payments for a number of months, and there is little reason for the bank to believe that the former homeowners will be able to pay the judgment in any time frame that would make it worth it to them. The money that would be used to pursue the deficiency judgment could more effectively be put towards new loans or investments.

So, homeowners almost never need worry about being sued by their bank after the foreclosure, even if the foreclosure laws allow it. The bank could theoretically try to make them pay the balance after the foreclosure auction, but lenders almost never do this. Unless the homeowners were extremely wealthy and owned numerous other liquid assets, the bank will simply move on and allow the foreclosure victims to move on with their lives, as well. This is often the best resolution to the foreclosure for all parties involved. What can happen in theory rarely happens in practice, in the case of deficiency judgments.

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Being Sued for a Deficiency Judgment After Foreclosure

Deficiency Judgments After Foreclosure - Do Banks Really Sue For Them?

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Homeowners facing foreclosure are often concerned that the auction of their property will not be the end of their financial and legal worries. The threat of a deficiency judgment being initiated by the lender after the sheriff sale is always being raised by foreclosure consultants, attorneys, and representatives of the bank trying to wring more money out of borrowers. But finding actual cases of deficiency judgments against the average homeowner can be extremely difficult.

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Is this an indication that banks are not pursuing deficiency judgments, or is it simply that these types of lawsuits are so rarely mentioned? Finding actual statistics relating to this type of lawsuit is difficult, and proving that they are rare can be even more trying, as it is nearly impossible to prove a negative. The absence of judgments against homeowners does not mean that they are never brought; after all, maybe every foreclosure victim defends the case and wins. Or these lawsuits are just rarely talked about. Or maybe former homeowners have deficiency judgments against them but, since they moved out of the house where paperwork was served, they are not even aware of it.

So finding evidence of deficiency judgments after foreclosure is not easy. Not for me, and seemingly not for other researchers online. Frank Llosa from FranklyRealty.com also wonders where these lawsuits are and comes to some of the same conclusions as we have, although he approaches it from the angle of banks bidding on properties at auction for the total amount due on the loan, thereby eliminating the possibility of a deficiency: "Why would they take over the property at 0,000 OVER what is it worth and let the previous owner be releaved [sic] from further obligations?"1

He suspects that the missing lawsuits may be an indication of the fact that foreclosing lenders, "figure it is a waste of time and effort for the banks to go after the homeowner since they are broke." This is much the same seemingly reasonable solution that I have raised before; after all, why would a lender, who has been thus far unable to collect on a foreclosure judgment, spend more time and money pursuing deficiency judgments against former clients?

The Florida Asset Protection Blog also mentions the possibility of deficiency judgments in cases where a second mortgage is present, but admits no personal experience with such lawsuits: "I have not seen any case to date where a first or a second mortgage lender has sued the homeowner personally." Same here, and these deficiency judgment laws, in the states and under the conditions in which they are allowed, have thus far proven to be unused weapons, similar in volume of enforcement to jaywalking violations.

Taking a look through actions in the local courthouse is also a bit of a wild goose chase, as there are far more foreclosures than deficiency judgments. In fact, there are no deficiency judgment cases that I could locate listed in my local court system. And this is in a state with a quick process and such lawsuits are allowed after the sheriff sale. Dozens of foreclosure cases, both open and closed, are listed, but no deficiency judgment cases involving the same defendants as the foreclosure cases in any of the listings I could find.

And online, instances of this type of lawsuit can most often be found in estate cases and auto loan repossessions, but not real estate foreclosures. Of course, this makes more sense, since someone who loses a car can still be served with lawsuit paperwork at a current address, car loan outlets have more access to local courts, and the small amount of an auto loan deficiency may be reasonably expected to be paid back.

Since it seems that deficiency judgments during foreclosure are quite rare, why are lenders not pursuing them right now? As has been discussed here before, it is usually just not worth the bank's time to sue people who admittedly have little money. About.com states that, "In many cases, your lender will not go to the trouble. 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." People with no job, assets, or not enough income may also be "judgment proof," meaning that, even if the bank got the deficiency judgment, it could not be enforced or collected.

And when families are made homeless because of the actions of the bank, it may be difficult to get a legitimate judgment against people who can not be reasonably located to be served with court documents. Few former homeowners leave a forwarding address when the move out of a property before eviction, being completely aware of the fact that their lives would be much simpler without further correspondence from the mortgage company. Since the bank suing for the deficiency is obviously also responsible for the fact that the defendants may not have a current address, former homeowners later claiming the lawsuit was never properly served is not a difficult argument to make.

Also, an important point for homeowners to remember is that, if they put down less than 20% of the purchase price, they are probably paying Private Mortgage Insurance (PMI). Even though the homeowners themselves pay the PMI premium on a monthly basis, this kind of policy insures the bank against the default of the loan, and if an owner goes into foreclosure, the insurance will pay the bank the amount of the mortgage left unpaid. Therefore, if a mortgage is covered with PMI, the bank can collect the insurance on the policy they forced on the borrowers instead of seek a deficiency judgment. Citifinancial itself states that, "If you have Private mortgage insurance, a lender can use this money to offset any losses instead of getting a deficiency judgment."

Now, investors and second home owners who have substantial assets may be at higher risk of being sued than first homeowners. But this is a very recent 2008 development. Robert Levin from Fannie Mae, announcing changes in the first quarter of 2008, stated that, "We are pursuing deficiency judgment against investors and second home borrowers." Will this be the case in all second home or investment home foreclosures by Fannie Mae? Only time will tell, but there is still little evidence that any deficiency judgments have been pursued thus far, and the nationalization of the mortgage giants will probably change this plan.

In fact, with the nationalization of the banking system and the Government Sponsored Enterprises, it is highly unlikely that any borrower whose loan that is taken over by the government will be subject to a deficiency judgment lawsuit. Instead, the politicians, in order to soften the backlash against the 0 billion bank bailout and to reassure constituents, will push much harder for loan balance writedowns, interest rate adjustments, and other loan modifications to make mortgage more affordable for borrowers.

So, it seems that deficiency judgments have been and will remain quite rare in the mortgage industry. Having extenuating circumstances (lots of land, numerous liquid assets, clear evidence of mortgage fraud) may put certain owners in danger, but the vast majority who took out loans and then faced an economic hardship will continue to have little to worry about from their bank after losing a home. There are just too many problems, from serving the lawsuit, to collecting on it, to bad PR, for the banks to think it is worth the extra bother.

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LAW OFFICES OF DAVID J. STERN, CHERYL SAMONS, MERS, DJSP FORECLOSURE FRAUD

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We had a good read. For the benefit of yourself. Be sure to read to the end. I want you to get good knowledge from Florida Vin Check . stopforeclosurefraud.com Law Offices Of DAVID J. STERN ESQ PA CHERYL SAMONS in her DEPOSITION states: She is not a Paid Employee for MERS, Does not answer to ANY President, Any Supervisors, Attends NO Meetings...Heck she doesn't even know where any offices are for MERS!!! BUT SHE DOES KNOW SHE IS AN ASSISTANT SECRETARY FOR MERS. HMMM I WONDER WHO SHE ANSWERS TO IN THIS LAW FIRM?These belong right up there with the works of Salvador Dali, Pablo Picasso, Vincent Van Gogh, Claude Monet, Erica Johnson-Seck, Roger Stotts & Dennis Kirkpatrick! I can't wait for DMV to allow anyone FOR A FEE to assign auto Titles too!! Or has this occured all ready...I am too tired to check! Lynn I am working on your LAMBORGHINI Question: What entity should I assign title to? If it is "TOTALLED" who should I vest title to after the I SWAP out the VIN # onto another Car to? We can do this as many times as you like for a fee. "This is no different to what these Banks are doing with the help of the MILLS."

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Buying a Home After a Foreclosure - How Long Do You Have to Wait?

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There seem to be a lot of misconceptions about how long a foreclosure can stay on the credit report of former homeowners, how long the foreclosure affects their ability to borrow negatively, and how long they will be unable to purchase a new home. Some borrowers believe, mistakenly, that they will never be able to buy another house, qualify for a car loan, or even get a credit card at a decent interest rate just because they lost a house. While the foreclosure will have serious negative consequences, the myths surrounding the issue can be much worse than the actual effects.

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The worst news is that a foreclosure will remain on a credit report for the full seven year reporting period. Although borrowers can request the bank to remove the record at any time and delete mention of the foreclosure, banks are rarely interested in doing this, and there is little that could force them to do so. Thus, former homeowners will most likely have to deal with having the negative mark on their credit report for nearly a decade, although its most damaging effects will be felt in the earliest years after the loss of the home.

This is because the longer in time the homeowners are removed from the initial foreclosure, the less of a drag it will be on their credit scores. Missed mortgage payments and then a foreclosure filing can instantly drop a FICO score into the low 500s or even the high 400s by the time the sheriff sale and eviction occur. But as time goes on, as long as the homeowners work on repairing their credit history by paying off any other debts, using borrowed money wisely in the future, and disputing negative or old information contained on the report, their score will begin to improve despite the foreclosure.

When borrowers would be able to qualify for a new mortgage after the loss of a house is almost entirely dependent on the effort they put into repairing their credit and establishing a new, on time payment history. They may be able to apply for a competitive loan within a couple of years after the foreclosure if they are able to show excellent credit since then. Saving up for a true down payment of 15-20% of the purchase price of the home is also important to the banks when considering whether or not to offer a housing loan. But homeowners who focus on credit repair may be able to qualify for a new loan within 2-3 years after foreclosure, while other borrowers may have to wait 4-5 before their credit repairs itself enough naturally.

Of course, if homeowners are able to stop foreclosure before the lawsuit, sheriff sale, and eviction have completely gone through, they will find it much easier to obtain any new credit later on. But, unfortunately, this may not be possible for some borrowers who have no other choice than to give up trying to save their home. The best they can do after this is to work on their credit report and make sure they get a fresh start after losing the property. Although it may take at least a few years to qualify for any new mortgage, this period of time should be used to pay off other debt, establish on time payment history, and save up for a down payment on a new home. While the effects of foreclosure can be severely negative, borrowers also have many options in mitigating the worst consequences to their ability to qualify for credit in the future.

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