An article written by Dina ElBoghdady of The Washiington Post http://thewashingtonpost.com brings to light a practice that few are aware of relating to "deficiency judgments".
When you go through a foreclosure and the bank resells your home, you may think that is the end of what was probably the worst financial nightmare you had ever gone through. Maybe NOT.
Over the last year lenders have become more aggressive about getting money lost in foreclosures and other distress sales, including short sales. Prior to the housing bust most lenders would rarely chase after homeowners to pursue a deficiency judgment. But because of the huge numbers of foreclosures, lenders are becoming more determined to get their money back, particularly if they think that borrowers are "skipping out" on a debt that they could afford, but because they were "under water" chose not to repay.
For the most part lenders are not going after people who are truly facing a hardship. But for those who may have had an equity line of credit, in addition to their primary loan they may be more vulnerable to the lender seeking a deficiency judgment, particularly if they tapped their line of credit for cash.
Because second mortgage lenders are last in line to get paid in either a foreclosure sale or a short sale, they are more likely to seek deficiency judgments to try to recoup their losses.
Sellers need to be made aware of the possibility of deficiency judgments and should talk to their attorney and an accountant about this possibility.
While many have no choice but to go forward into foreclosure or to seek a short sale approval, it is important that we as real estate professionals make the seller's aware of this possibility so that they can make informed decisions.
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