Being Sued for a Deficiency Judgment After Foreclosure - Do Banks Really Sue Homeowners

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If you have an upside down mortgage, the temptation to just walk away is attractive since you owe the lenders more money than the current market value of your house. Some homeowners that are falling behind their mortgage payments are probably worried about foreclosure.

In both cases, you need to be aware of how deficiency judgments can be filed by your lenders to garnish your pay checks and tax returns or to place a lein on your other assets in order to claim back the money you owe them. While this is perhaps the most worrying question on the minds of homeowners regarding how losing their homes to bank foreclosure can affect them, many are unsure what to do.

Home values have dropped across the whole nation due to the sub prime mortgage crisis. If you are in foreclosure today, auction sale of your properties by the county sheriff will not be sufficient to pay off your remaining loan in full. Therefore, there is still the possibility of your lender suing you after you have lost your homes to foreclosure and getting a lien on your remaining assets. However, there is a low chance of them doing so if you are in genuine financial hardship and not just trying to walk away from an underwater mortgage irresponsibly despite your ability to pay.

Even though the banks are allowed to sue the homeowners, they rarely choose a deficiency judgment. Eventually, it boils down to cost and the effects of negative publicity. Mortgage companies will carefully calculate whether it is worth any economical reasons to pursue judicial judgment against homeowners or not.

After the sheriff sale of your foreclosed house, the sale proceeds will be used to pay off liens on the house title. However, it is usually your first mortgage company that purchases the property at the minimum bid amount required by the law.

List Of Non Recourse Mortgage Loan States

In some states, the foreclosure laws do allow the banks to sue foreclosure victims for a deficiency judgment. However, there are many non recourse states that restrict this from happening. If you are living in the following anti-deficiency states, you do not need to worry about further losing your income due to wage garnishment.

• Alaska
• Arizona
• Connecticut
• Florida
• Idaho
• Minnesota
• North Carolina
• North Dakota
• Texas
• Utah
• Washington

List Of One Action States

In the following states, mortgage lenders are only allowed one legal action to collect back their debts from each homeowner. Depending on the exact state’s laws, the options are different. For example in New York, the lender can choose either to foreclose the house or to sue the homeowner. If you are living in any of these states, you will have to consider your approaches more carefully and possibly by consulting a local foreclosure attorney on your homeownership:

• California
• Montana
• Nevada
• New York
• Utah

Any legal process takes a long time and there are hefty costs involved as well. There is no guarantee the lenders can successfully claim back their money through income garnishment or asset liens because these foreclosure victims ended up in foreclosure because they are unemployed, have emptied bank savings and no other valuable assets. For such situations, the banks and lenders have more to lose by pursuing deficiency judgments.

If there is little chance of collecting back the money owed, a deficiency judgment after foreclosure will only create more losses for both the homeowners and the mortgage lender. Furthermore, the lenders need to expend resources to hire foreclosure attorneys to sue their customers which can prove to be damaging for their reputation and loss of branding within the local community. All these expenses on legal and debt collection activities are to be borne by the banks before they are successfully awarded the deficiency judgment.

If the banks have reason to believe that these homeowners are in true financial hardship and that is the reason why they miss the monthly mortgage payments successively, then the banks will probably write off these debts since the resources required to pursue after foreclosure deficiency judgment may as well be used towards high returns investments or loans. Furthermore, healthy relationships with their customers can be maintained.

What Happens After Your Foreclosure

So, homeowners that are facing true financial hardship usually need not worry about being brought to court by their banks even if there is a deficit after the foreclosure sale. Even if the bank have the legal right to make homeowners pay up the balance owed after the foreclosure auction, but lenders almost resort to doing so.

The situation is different of course, if the bank is aware that the homeowners are wealthy and possess other highly liquidly assets. Most of the time, the bank probably have to write off the losses caused by the foreclosure victims such that both parties can move on. This is often the most common resolution to a home foreclosure and not escalating to deficiency judgments.