“Many Get Sued After a Foreclosure and Short Sales”
Many, that have experienced a foreclosure or a short sale are getting sued. They foolishly believe that once this process is done, the creditor that didn’t get paid all they were supposed to get, can’t go after the rest of the debt.
Not true, unless you get it in writing or the debt is discharged in a bankruptcy. Many aren’t properly represented and what is even worse, even if they are represented, they don’t always get good advice.
In most cases, if these folks say they want the creditor to sign a document, that says, no one will pursue legal action to collect the remaining debt. Otherwise the creditor can take legal action to collect the debt.
They need to get everything in writing, no matter what they are told verbally.
Real Estate Q&A: Second Mortgage Comes Back to Haunt Borrower
BY: Gary M. Singer
QUESTION: I lost my home to foreclosure in 2010 and have moved on with my life and am trying to buy a new home. I just got served a lawsuit on the home equity line of credit that I had on the home that I lost. What is this?
ANSWER: This is a nightmare that more people are starting to face. When you lost your home two years ago, your line of credit, which is really a second mortgage, was not paid off because there was not enough value in your property to cover it in the foreclosure sale. That loan has sat out there, and now your lender has decided to sue you to recover the money that you borrowed.
A mortgage loan is made up of two components: the promissory note and the mortgage. The note, or credit agreement in your case, is the bank lending you money. The mortgage is the document in which you pledged your home as collateral to the lender to secure repayment of the money. Now the collateral, or your home, is gone, so the mortgage is useless — there is nothing for the bank to take back — but the loan still exists and your lender has the right to sue you to get a judgment against you.
Think of it as your friend lending you $10 to buy a hamburger and fries. Now it’s next Tuesday, and your friend wants her $10 back even though all that remains of your lunch is the lingering memory of it.
I encourage you to try to negotiate with your lender to take less than what is owed. Lenders often will take pennies on the dollar to settle this sort of debt.
Q: I am confused as to what defines the deficiency amount in a short sale. If $116,000 is the balance left on a mortgage and a short sale of $120,000 is accepted by the bank, is there still a deficiency? If so, how is it figured?
A: In a short sale, the deficiency refers to the amount remaining owed to your lender after the closing. In your example of a $120,000 sale price, the bank may have received only $106,000 after paying for real estate agents and closing costs, in which case the remaining deficiency would be $10,000.
In a foreclosure, the “deficiency” is the amount that is awarded to the lender on the final judgment, which includes not only the remaining principal due to your lender, but also attorneys’ fees, court costs, interest and the like, minus the actual market value.