Many homeowners facing foreclosure don't understand that even after their home is sold at auction the mortgage company can come after them for the balance of their mortgage. When a mortgage company comes after a homeowner for payment after foreclosure, it's with what's called a deficiency judgment.
Here's what you need to know about Foreclosure Deficiency Judgments:
- In the state of Texas a mortgage company may win a deficiency judgment if the mortgage you have on your home is significantly more than what they sold if for at a foreclosure auction. For example, if you bought your home for $150,000, have a mortgage for $100,000 and the home sold for $50,000 at a foreclosure auction, you could be on the hook for the balance of that mortgage.
- The law says that the mortgage company can only come after the homeowner for the difference between the balance of the mortgage and the "fair market value" of the home. In laymen's terms it means that an appraiser will value the home and say what it's really worth on today's market and then the mortgage company will subtract what it was auctioned for from that amount. For example, if the home mentioned in our first point is determined to have a "fair market value" of $100,000 the debtor would owe $50,000; but if the appraiser said the home was only worth $75,000, then the debtor would owe $25,000.
- The mortgage company holds all of the cards when it comes to deficiency judgments because they have the appraisers in their back pocket. Many appraisals are challenged and found to be faulty. However, most foreclosure victims don't have the resources and energy to fight deficiency judgment appraisals when they are dealing with other debt issues. That's why many choose to file bankruptcy where a deficiency judgment can be discharged.