Consumer Law

Mortgage Lenders Still Go After Homeowners Even After Foreclosure

By M. Stan Herring

CNN Money.com has posted an article about how you might still be pursued by mortgage lenders even after your home has been foreclosed. If a foreclosed home sells at auction for less than what the mortgage is worth, the former homeowners are responsible for the difference.

These "deficiency judgments" can even come up years after a home has been foreclosed and include people who get approval from the bank to sell their home for less than it's worth.

Vanessa Corey, for example, short sold her Fredericksburg, Va., home in April 2008. She and her husband built the house in 2004, but setbacks, both personal (divorce) and professional (housing bust), made it impossible for the real estate agent to keep her home. So she negotiated the short sale and thought that was the end of it.

"My understanding was that the deficiency was negotiated away," she said. "Then, last November, I got a letter from a lawyer telling me I owed my lender $65,000. I had to declare bankruptcy. There was no way I could pay it."

These deficiency loans are really affecting people who have been impacted by falling home prices and unemployment. They can no longer sell their homes for what they owe and instead have to settle for quick sales or have to foreclose. After foreclosure, it's very common for banks to have houses that are worth less than what is owed on them.

Whether banks can and will pursue deficiency judgments depends on many factors, including what state the borrower lives in and whether there's a second mortgage or other liens. But if borrowers ignore the possibility of deficiencies, it could haunt them.

Lenders can currently pursue foreclosure deficiencies in 30 states. Even when lenders are willing, homeowners are often not aware that they can ask for release from further financial obligation. If you are interested in a short sale, be sure to have your attorney ask the bank to release you from further obligation.

If you would like more information about foreclosures you can check out our articles The Three Stages of Foreclosure in Alabama and Wrongful Foreclosures in Alabama.

If you have more questions, feel free to contact us through our website or by calling 205-879-2447.

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Full post as published by Alabama Consumer Blog on February 09, 2010 (boomark / email).