Mortgage Meltdown: Deficiency Judgments

Theoretically it is possible for any lender in a foreclosure to pursue what is called a “deficiency Judgment.” This is the amount they lost after selling the property to a third party. The amount they “lost” includes all their interest, penalties, legal fees, court costs, and other out of pocket expenses. 

Most mortgage lenders do not seek or obtain deficiency judgments on residential property. Generally speaking they are futile and uncollectible and the foreclosure is enough to put a big black mark on your credit history.

For one thing, they open themselves up to a night mare of counterclaims because of all the violations and breaches they committed during the closing process. For another reason, they would be digging themselves deeper into a hole they are already in — that they went for the sale and foreclosure without owning the mortgage and note and without proper authority to do as because in the rush to sell all these mortgages, most of the people didn’t know what they were doing or care. They just wanted the money that was rushing in. 

3 Responses

  1. I own a fee simple condo at a WV ski resort. I placed an 80-10-10purchase loan with a first trust for 154k and a LOC (not a HELOC because it is not a primary residence), for 18k, both with Wells Fargo and I have 18k down pmt in the deal. I paid 190k and the last one sold at auction for 70k. There is no “condo-tel” funding right now so any buyer woould have to pay cash. WV is an non-judicial state so the forclosure process is out of court and is a 60-90 day process from missing the second or third pmt. I want to let it go into forclosure and am trying to investigate the lender’s posture on deficiency judgements. The property is $1,439. per month for nine months of the year. I am looking for lender specific guidance and general expereince guidance.

  2. here in MN the second lien holder really holds out hard and pushes for a deficiency judgement, or they often charge off the debt, then sell it to a debt collector. I work quite a few short sales, and thats been my expirience.

  3. I wish you were right my friend. Right here in AZ (where I think you live) I know of one case where the lender actually received a Deficiency Judgment on a HELOC, even though our Statutes would normally prohibit it. I have several friends who had rental properties foreclosed and they have received dunning notices from collection companies threatening legal action to collect.

    I think with so many of these mortgages being owned by “non-bank” entities you will see alot of people being sued for deficiency. If a Hedge Fund buys the note for 20 cents on the dollar and then forecloses, why wouldn’t they go after the homeowner to make even more money?

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