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How To Get Rid Of A Deficiency Judgment After Foreclosure

Posted By admin || 28-Jun-2010

How To Get Rid Of A Deficiency Judgment After Foreclosure

Getting Rid Of A Deficiency Judgment After Foreclosure

Many debtors who are walking away from their homes are finding that they have a deficiency judgment after the lender fails to recoup the entire amount of the mortgage after the foreclosure auction. Generally speaking, a mortgage lender can pursue a debtor for the balance of the mortgage even if they repossessed the home in foreclosure or if the home was sold in a short sale.

But there are some ways that a debtor can avoid paying a deficiency judgment:

  1. File bankruptcy.  If the debtor has significant debt and too little income, filing bankruptcy may be wise after receiving a deficiency judgment after foreclosure. Bankruptcy will discharge the deficiency mortgage and any other unsecured debts and that forgiven debt is not subject to taxes.
  2. Ask the lender to forgive any deficiency that you may have after a foreclosure or even after a short-sale. But you will need to do this before the home goes through foreclosure or is sold. Lenders have the power to forgive the deficiency judgment; but even afterwards, you may still be on the hook for paying taxes on the forgiven debt.
  3. If you are able to get the lender to forgive your deficiency judgment after foreclosure or a short sale, you may be able to avoid paying taxes on that forgiven debt under certain circumstances. Under the Mortgage Debt Relief Act of 2007, the IRS may not tax forgiven debt that was incurred for the purpose of constructing or substantially improving the principal residence of the debtor. For example, if a debtor took out a home equity loan to repair the roof their home and add a deck, then they may not incur taxes if that debt is forgiven.
Categories: Foreclosures
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