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Will You Ever Have To Pay A Deficiency Judgment From A Foreclosure? By Dave Dinkel When a foreclosure is finished and the home is sold or assessed by an appraisal, for the loss on the mortgage, the deficit amount the bank will not get back from the balance and expenses due, is called a deficiency. In most states, the lender has an option to get a judgment in this amount against the borrower and this is called a "deficiency judgment". In addition to the loss of the homeowner’s home he also has the potential of having to repay this judgment in the future.
Even if the bank accepts a "deed in lieu of foreclosure" they can still get a deficiency judgment against the borrower. The borrower is the one responsible for the or deed of trust payments and he may or may not be the homeowner. If the homeowner has a co-signer, the co-signer will be as legally responsible as the borrower to pay back the deficit due. Depending on whether the foreclosure is judicial or non-judicial, and the specific terms of the mortgage, the bank may not be able to seek a deficiency judgment. These laws vary state-by-state and should be reviewed carefully to determine which applies to the reader.
The bank doesn’t just have the amount of the unpaid loan balance due but also legal fees, accelerated interest payments, back principal payments, in some cases pre-payment penalties, and other expenses as part of the judgment amount. This is why a homeowner who has had his a couple of years could owe more than he borrowed originally. As an example, the homeowner borrowed $200,000 in June of 2006 and in January of 2008 he goes into foreclosure and the final judgment against him could be $218,000! This is because of the additional expenses and the fact that he pays mostly interest in the first 10 years of his mortgage.
The largest loss the lender has is his loss of the ability to loan about 7 - 10 times the unpaid balance. This is because the Federal Reserve requires the banks to put cash into a non-interest bearing account to cover potential losses. Since the bank can no longer use these funds to get additional loans from the Fed, he is losing tremendous loan power. This loss of revenue to the lender can not be passed on to the homeowner or borrower.
The major factors in deciding whether the lender will pursue a deficiency judgment are whether the lender feels he can collect the judgment and the cost to collect it. In the process of working with the homeowner, the lender pulls his credit and can see what other outstanding bills he has and whether they are being paid timely. The lender can not see what assets the homeowner has but can sometimes see where he works. The homeowner will be asked to fill out a Net Worth Statement ("NWS") which will disclose these assets to the lender. This document is a major part of the decision to pursue the judgment or not. If the lender has
mother deeded house to me but still has a mortgage My mother lived with me when my home foreclosed 6 years ago. (tried to sell it - unsuccessful). She purchased a home for all of us, and did a quitclaim to me right after closing. There is a 30 year loan on the property, which I have been paying the entire time and doing all updates and repairs. She passed away a few months ago and I have been paying the mortgage and haven't informed the lender. Do I have to tell them and can they force me to refinance? I am sure my payments would increase ... Labor Day, 2010 The end of labor is to gain leisure. - Aristotle
Happy Labor Day to all!!! Broader mortgage aid for underwater homeowners The Obama administration will be launching it's most ambitious plan to reduce mortgage balance for underwater homeowners on Tuesday, 7.09.2010. It is expected that if the new plan is successful, then it will help to modify around 500,000 and 1.5 million underwater loans. It is said that this is the first initiative to help homeowners who are current on their mortgage payments but are at risk of default as there's no equity in their homes. Self employed for 16 months, will I qualify for a home loan? I know I could just apply at a bank, but I wanted to test the water before effecting my credit score with credit checks. I want to apply for a $300k-$350k first time home loan.
25 years old
$6300 monthly pre-tax income
731 Fico Score
$100,000 in documented liquid assets (stocks portfolio & savings) although I don't want to put it all down unless necessary as I would much rather keep it in the market while its down.
Where I see my problem is my job history/security... I am self emplo... can i quit claim after loan modification? My loan company has just allowed me a loan modification, but I am still unable to pay. Can I now quit claim the house to someone, not a family member for money and to save my credit? Can this deed be changed? my mother made a warranty deed stating that she sells, conveys the property to me for $10, and she reserves a life estate. since this has been recorded over a year, and I have paid taxes on the property, can she legally change her mind and put this property in someone elses name? Does Home Equity Loan get discharged in Chapter 7? My Chapter 7 bankruptcy was already discharged several months ago. I own and live in a home valued at approx. $700K, with a 1st mortgage of $625K (which I continue to pay every month), and a 2nd mortgage of $200K (which I am also still paying on). The question is: should I still be paying the 2nd/Home Equity Loan ? The Home Equity Loan no longer appears as an "Open Account" on my credit reports.
If I stop paying it, will the bank (BofA) holding the 2nd try to foreclose on my home? ... Deed-in-lieu of forclosure I have submitted hardship letter and required documents to my lender for a short-sale. House has been on the market for 2 months, lowered price 3X and no offers. Lender has determined (decided) that my hardship (too much debt besides mortgage) was a "personal choice". Both my wife and I still have jobs. We can't afford to meet all our debt obligations. We are looking into moving to an apartment and try to start all over with better financial management. We are considering to ask lender... reverse mortgage query Who pays taxes & insurance if the homeowner can't & house has fallen in value to below line of credit amount? Does the bank just pay and add the amounts to final debt on property? My name is on Title, but NOT on mortgage, will filing bankruptcy still effect my credit? Hi. My friend and I bought a house with no money down and took out a first and second interest only mortgage 80/20 for the full $350,000. The Mortgage is only in my friends name, but we are both on the Title, we both make even monthly mortgage payments and declare them on our income taxes. The house is now worth $ 225,000 due to the slacking economy. We have to move out and can't afford to sell and take that big of a loss, we tried the "loan modification program taken a job and the bank sai...
no reason to believe the homeowner has extensive assets, they will issue the IRS Form instead. A note of caution - falsifying the NWS can be bank fraud in some states so be careful if you intend to return the NWS to the lender.
The deficiency judgment is determined by the court-approved "Final Judgment" amount in most states. However, in some states, the property must be sold or an appraisal done to determine the "expected" net loss. If your state does this procedure by appraisal, contest the appraisal and have the judgment lowered if you believe it was not correct.
The lender usually chooses not to get a deficiency judgment and instead report the loan deficiency amount on IRS Form 1099. The result to the homeowner is a "phantom income" requires him to pay income taxes on this amount. In this situation the final cost of the guarantor’s foreclosure is the amount of income taxes he pays the IRS instead of the entire deficiency judgment. This is a substantial savings to the homeowner and the lender also benefits because there is no collection on his books that is counted as a liability. Unless there is suspicion of fraud in the original loan, the lender will issue a 1099. In December of 2007 legislation was enacted that allows a maximum exemption amount a homeowner who resides in his property can write off for this deficiency amount.
Carefully weigh your rights and options when you make a decision to allow your home to be lost to foreclosure, as there are solutions besides foreclosure and deed transfer to the lender. Do not be paralyzed with fear that the lender will follow you forever to collect the deficiency judgment, as you have a number of options to fight this including attacking the validity of the original loan.
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