Deficiency Judgments and Foreclosure

Posted on August 21, 2008
Filed Under Foreclosures |

If you have more than one house and you are dealing with a foreclosure, you may be worried about the bank trying to gain possession of your second house if you can’t save the first house. Representatives from the bank and “armchair” foreclosure experts may threaten to sue you once more and say you could lose your other house, have assets repossessed, have bank and other accounts stolen and you paycheck garnished. Fortunately, these things will probably not happen.

Foreclosure is a serious issue and needs to be taken seriously and you should find out what your options are. It is important to consider various solutions and not to just settle on letting your home go into foreclosure. Try to get a time extension from our bank even if your home is going to be part of a sheriff sale. A bank has the ability to postpone foreclosure proceedings to allow you more time to find a solution.

You may want to think about putting your house up for sale even if you do a short sale. A short sale is when the bank agrees to take less on the house than what is owed. If you cannot save your home and your lender does not want to do a short sale you may want to do a deed in lieu of foreclosure which means that you voluntarily return the home to the lender. A deed in lieu of foreclosure will stop foreclosure and will stop all legal proceedings and you will not have to see your home auctioned off.

If one of your houses goes into foreclosure and you lose it in auction, this doesn’t mean that the bank can go after another home you own or any other assets you still have. There are a number of requirements that need to be met in order for the bank to try and sue you a second time after foreclosure. Many of these requirements are easily met but there are some that guarantee that your bank will not have the time to pursue a lawsuit against you or pursue any additional homes or personal items.

The first requirement that needs to be met before a bank can sue you for a second home is that the first home needs to sell at auction for under what is owed at the time of the auction. Most banks can meet this requirement since the bank has tacked on thousands of dollars to the sale price so no one, not even a bank will pay a lot of money for the house. Most of the time, the bank makes the only bid on the home and they bid the minimum so the home will sell for a lot less than what is owed. The bank will get the property and will get to write off the amount that was lost of the debt.

Next, the state you live in needs to allow for deficiency judgments in foreclosures. Not every state allows this as far as foreclosures go so you need to be sure that you research the law in your state and find out if your bank can sue you and what the circumstances would have to be. If your bank can pursue a second lawsuit against you is determined by the kind of foreclosure, and whether the foreclosure is non-judicial or judicial. These things are a factor in how hard it will be for the bank to begin a lawsuit.

Lastly, you need to have something valuable that the bank wants. This will usually be a liquid asset that the bank can seize quickly and easily. This doesn’t mean your second home. If the bank was not able to get any money from you during the first foreclosure it is not worth their time or money to go after your second home.