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Things You Need to Know about Deficiency Judgments | Ferrelli & Associates

Things You Need to Know about Deficiency Judgments

The turmoil that has been caused by the recent housing boom and resulting mortgage meltdown is leaving many distressed homeowners looking for a way to release themselves from the financial pressures of their increasingly expensive mortgages. Many homeowners attempt to modify their mortgage loan or dispose of their property by way of short sale. Unfortunately, if neither of these strategies is successful, many homeowners will find themselves facing foreclosure.

In the event that your home is foreclosed upon and sold at auction for less than the original amount, there is a chance that the lender could sue you for the remaining amount, commonly known as a deficiency judgment. For example, if a homeowner has $100,000 balance on their mortgage and the property is sold at the foreclosure auction for $60,000, there is a possibility that the lender may sue the homeowner for the remaining $40,000, resulting in a deficiency judgment if the remainder is not paid.

The regulations surrounding deficiency judgments vary from state to state. Although this may seem like a very scary scenario to most distressed homeowners, the reality is that deficiency judgments are fairly rare. Once a property is sold during the foreclosure process, most understand that it is a waste of time to sue a homeowner for the deficiency if the homeowner was unable to pay the monthly mortgage payments. It should also be noted that the expense of hiring an attorney to represent the lender in attempt to recover some of the investment in the defaulted loan would be extremely expensive and ultimately fruitless.

In addition to the monetary costs that would be required to sue a home owner for a mortgage deficiency, there would surely be a significant time requirement that the lender would have to commit to in order to sue the homeowner. Once you multiply the financial and time commitments required to sue one homeowner for a deficiency by the thousands of distressed loans that they may have in their portfolio, you can gain a better understanding for why deficiency judgments are very rare.

Overall, most home owners will never have to worry and stress about having a potential deficiency judgment placed upon them. Unless you are extremely wealthy and have an abundance of additional assets and capital, most lenders will not be willing to take the time and make the financial commitment needed in order to go through the process of placing a deficiency judgment upon a homeowner. So you can rest assured that your wages will not be garnished and your other assets will not be seized in the unfortunate event that you have to go through a terrible foreclosure. The process is already stressful and embarrassing for most people, so the last thing you want to worry about is having a deficiency judgment filed against you during such a stressful time in your life