Nov
13


What is a Deficiency Judgment?

Saturday, November 13, 2010

 

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.
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 our team lists your home, 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.

Rather than let your home go into foreclosure, give us a call at 425-830-4620 to discuss if a Short Sale is a better way for you to handle this situation.

 






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Estella said
"That is a beautiful shot with very good lighting ." about Women Consider Owning a Home to be a Vital Component of the American Dream
on Sunday, May 12, 2013 @ 9:57 AM

Chris White - Team Leader said
"Unfortunately you are not alone. It's more than an outcry. The powers that be really need to come down harder on Bofa than they already are. Working on these short sale for over 2 years now I've uncovered down right fraud happening on the lenders parts. If they cared more about moving this country forward than protecting their own wallets then they would cut the red tape and approve these short sales in a timely manner. Our team made the wise decision to get BofA loans which were FHA or Freddie Mac backed, approved prior to listing on the market. Then we can list the home as "Price Approved" and close in 30 days. In this instance BofA does a full appraisal, rather than an incompetent "Broker Price Opinion" (nothing against agents but they have no idea how to make adjustments on comparable homes) and then the bank issues an "Approval To Participate" letter which dictates what price we can go on the market and take anything north of 88%. I really do hope your situation improves. " about Congressional Bill to Speed Up Short Sales
on Tuesday, August 30, 2011 @ 9:15 AM

Lisa Zeiner said
"We made an offer 4 months ago to BofA, and have heard nothing. It was a cash offer which is better than the zero money they are collecting now. And since the people don't care they are trashing the place, by the time BofA gets around to it our offer will be gone as the place is a mess!! Septic issues now, garbage being dumnped. All of this could have been avoided if BofA really wanted to correct their cash flow problem and sell these properties in a timely manner. They cry about cash but then do nothing intelligent to fix the problem" about Congressional Bill to Speed Up Short Sales
on Tuesday, August 30, 2011 @ 9:06 AM

Jones Ramirez said
"Thank you for the work you have done into this post, it helps clear up a few questions I had." about How do appraiser’s determine a homes value?
on Tuesday, April 19, 2011 @ 10:07 PM

HollyRobsonf said
"Hey - I am certainly happy to find this. great job!" about Bank of America to Offer Principal Reduction to Underwater Borrowers
on Wednesday, April 13, 2011 @ 6:45 PM