During the real estate boom, most mortgage lenders did not bother to pursue borrowers who lost their homes to foreclosure and whose home did not sale for more than the mortgage. Most borrowers who did not have income or assets usually got away from a deficiency related lawsuit. But that has changed since the foreclosure crisis. Mortgage lenders are now desperate to pursue almost anyone to get even part of the deficiency paid if possible. Many borrowers are finding that even 6 months to a year later, mortgage lenders are filing lawsuits against them demanding payment on the deficiency.
Here’s what borrowers facing foreclosure need to know:
- Owing more on your home than it is worth is a huge risk. There is a risk that the mortgage lender will pursue you later on for payment on the deficiency balance. Even if you lost your home to foreclosure or if a lender approved a short sale, the lender can pursue you for payment on any balance that was not covered by the sale of the home.
- Many lenders are coming after homeowners who clearly have no assets or even income. Just because you lost your home to foreclosure doesn’t necessarily mean that you are in the clear. Some lenders are now waiting for debtors to get on their feet and then go after them for payment.
- Unless you have a letter stating that your mortgage lender will forgive any deficiency balance after a foreclosure or short sale, you are vulnerable to a possible lawsuit or collections action. If you have a deficiency balance after losing your home to foreclosure or selling it as a short sale, you may want to consider your bankruptcy options. Bankruptcy can wipe out any deficiency balance you might owe.