Deficiency Judgement after foreclosure
When a lender forecloses on a mortgage, the total debt owed by the borrower to the lender frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a “deficiency.” For example let say you owned $100,000, but the home only sells for $50,000 at the foreclosure sale. The deficiency is $50,000. Lenders can ask for personal judgment against the debtor to recover the deficiency. Lenders will be able to collect by levying the borrower bank account, wage garnish (your employer holds back some of your wages and gives them directly to the creditor.
When a senior lien holder forecloses, any junior liens such as second mortgages and Home Equity line of credit is also foreclosed and those junior lien holders lose their security interest in the real estate. If a junior lien holder has been sold-out in this manner, that junior lien holder can sue the borrower personally on the promissory note. This means that if the equity in your home doesn’t cover second and third mortgages, you may face lawsuits from those lenders to collect the balance of the loans. There are some exceptions to this rule as well. For example, if the same lender holds both the senior and junior loan, the lender cannot pursue a personal judgment against you for the junior loan after foreclosing on the senior loan. Also, the lender cannot seek a personal judgment against you if the loan was a purchase-money loan.Often, homeowners obtain a second mortgage when purchasing their property or, in some cases, later decide to take out a home equity loan. Second mortgage lenders, just like first mortgage lenders, will require that you sign a promissory note and a mortgage that pledges the property as collateral for the loan.There may be other liens on the property as well, such as a judgment lien. If you are sued in court for a sum of money and lose the case, the prevailing party will be granted a judgment. That party may then file a judgment lien, which is a lien that attaches to your real estate. Generally, the priority of a lien is determined by its recording date (though some liens, such as property tax liens, have automatic superiority over essentially all prior liens). First mortgages are, as the name suggests, typically recorded first and are in first lien position. Second mortgages, which are often recorded next, are usually in second position. Judgment liens are frequently junior to a first mortgage and possibly a second mortgage, as well as perhaps other judgment liens previously filed by other creditors. Sometimes there might be tax levy or similar lien placed against the property being foreclosed upon and the foreclosing bank or homeowner's association may have potential claim. States where the property is located may also have other judgment against this property such as unpaid personal property taxes or business taxes (if the property was registered as a business).
Bankruptcy to avoid Deficiency foreclosure
If you can’t afford to pay deficiency judgment, the best solution will be to seek bankruptcy legal advice. You have to have less than your median income in your state to qualify for bankruptcy discharge. Even if you exceed that amount it doesn't mean you're disqualified. If you are what is referred to as "an above median debtor" you may still be able to qualify for chapter 7 by completing what is called the "means test." If you pass the means test, then you can file for chapter 7.If you do not pass the means test, then chapter 13 is still an option for you, however if your debt are primarily business debts you are not subject to the means test. Credit unions are more aggressive than bank in collection and are granted special privileges in bankruptcy, such as cross collateralization of assets and debts.The bankruptcy filing does not provide the lender a way to recover the property. It must still proceed with one of the two above methods. In some cases, the lender will wait until your bankruptcy case is closed to start or continue the foreclosure process. In other cases, the lender will not wait that long and will file the appropriate paperwork with the bankruptcy court to allow it to take the property out of bankruptcy protection and continue with the sale.
How to avoid foreclosure?
if you can't afford to make a regular monthly payment and you are sure that you don't want to save your house, then the best option will be to do deed in lieu of foreclosure. Basically, you sign over all interest in the property to the lender. This avoids the foreclosure process and is slightly better for your credit than a foreclosure. You will save your money and time and avoid having Judical foreclosure. Judicial foreclosure, as the word implies, requires the lender to go through the court system to take back ownership of the property. Nonjudicial foreclosure allows the lender to sell the property at a foreclosure auction, without court approval, after following a state-specific foreclosure process.
What to expects in foreclosure process?
When you are late on your mortgage , bank will typically make a couple of phone calls to see what is the reason you fell behind on your mortgage payments, however no foreclosure will being until you are seriously past due. Typically foreclosure process takes around a year before you have to move out.In order for banks to remove you from your occupied property they have to do couple of steps.
- Filling foreclosure case, serve you to your house.
- Court will appoint Meditation process in case you want to save this property.
- If you fail to appear in court or responds to a lawsuit court will order default judgment for failure to appear and file responds.
- Mortgage Company will seek judgment of strict foreclosure and in that motion the bank would assign law days which are the days by which anyone with an interest in property must pay-of the full mortgage debt or refinance debt.
- After the law days pass, the bank then owns the property and can request to remove you from property
- In order for them to remove you from property bank would have to file Motion for ejectment which would tell the Marshall to move you out from your occupied property.
However, if you want to save your house then you should definitely hire foreclosure defense attorney to help you negotiate with lender to save your house.