Thinking of Walking Away? What About the Deficiency Judgement?

Real Estate Agent with | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 228209

Thinking of Walking Away?  What About the Deficiency Judgement?

Short Sale Deficiency JudgementsMany homeowners who are facing foreclosure fail to consider is the possibility of a deficiency judgment.  Deficiency judgments are levied by your former lender, who simply 'sues' you for the balance of what was owed on your mortgage at the time of the foreclosure less the eventual sales price, plus legal expenses, penalties, etc.   If the primary mortgage of $300,000 nets the lender (after foreclosure) $150,000, the amount of the deficiency would be $150,000 + legal fees, penalties, etc.

Homeowners facing foreclosure in North Carolina can and are walking away or otherwise allowing their homes to be foreclosed upon without any recourse from their lender.  Purchasing a new home is not an option for 7 - 10 years but, they could escape the possibility of deficiency thanks to North Carolina General Assembly Statute § 45‑21.38A.   Before you take any steps to walk away, I would strongly advise that you meet with an attorney to see if you are eligible to apply for mortgage deficiency forgiveness.

If it is your primary residence, the loan was originated after 2005 and has remained your mortgage since 2005, and is NOT a line of credit, you could be covered by the deficiency judgement forgiveness program.

Please bear in mind that this does not affect any tax implications that may or may not be included in the forgiveness by this statute.  Please contact your CPA or tax attorney before making a decision to walk away from your mortgage.

If 7-10 years of not being able to purchase another home or real property does not appeal to you, contact a short sale specialist to help you avoid foreclosure--a far better alternative to most distressed homeowners.


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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices


I have suggested it. If nothing else, I would be a better Call Shots guy (LOL). I di not know that  you like California have no recourse loans, wow.

we don;t and deficiency judgments are a very serious consequence unless, besides being a primary residence for 2 years, the homeowner was insolvent at the time of either Short Sale, or Foreclosure...

Again, this  is good question to a tax man as there are specific parameters, and not all loans would qualify, like you rightly showed.

It  is very hectic right now, so I am using thhis opportunity to wish you Happy Holidays.

Dec 19, 2010 09:07 AM #1
Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

I had a short sale listing under contract, the seller was told by their lender, if they let them off the hook for the deficiency...they would receive a 1099 for the capital gain (due to the forgiveness)...this was not a primary home, the sellers filed for chapter 13 bankruptcy protection. They couldn't afford the tax consequence of the short sale.

Dec 19, 2010 09:23 AM #2
Jane Peters
Home Jane Realty - Los Angeles, CA
Connecting you to the L.A. real estate market

Not sure if this is such a great idea if it encourages people who can afford their mortgages to walk away.

Dec 19, 2010 09:41 AM #3
Debe Maxwell, CRS | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

Hi Papa Jon!  We don't have deficiency judgement in NC but, is it REALLY worth walking away and facing the tax consequences AND up to 10 years of renting?  I could NOT imagine!  And, we're also on the SC line, which IS a deficiency state so, we get them both ways.  Thanks for the suggestion also!  

Steve:  Oh, that STINKS!  I could not imagine getting so far, only to find this out.  The tax burdens can be quite costly too! 

Jane:  I totally disagree with walking away too--we aren't a deficiency state in NC but, the SC side of our area is.  I would never encourage anyone to walk away as this is to help them understand that >7 to 10 years is a VERY long time not to own a home--and the tax consequences are definitely REAL with a foreclosure!

Dec 19, 2010 09:47 AM #4
Thom Abbott |770.713.1505 | Intown Atlanta GA Condo Living - Atlanta, GA
Midtown Atlanta GA Condos For Sale

Unfortunately, when the lender won't even work with the home owner, what are you to do then?

You try to do a short sale, and the bank moves ahead with foreclosure anyway? The system is still so messed up, that many people are getting caught in the middle of this mess.

I've got a client who just called this week. He wants to short sale his townhome, and his finance is going to sell her condo (hopefully NOT a short sale). But then they want to buy a house when they get married shortly thereafter.

We've agreed to sit down with a lender, and map out a what if strategy to see if they CAN buy after the short sale. But, then, don't forget...they have to screw up their credit by not making payments for 3 months before the lender will even TALK to them about a short sale.

And then we wonder why people end up walking away.

I need to do a post about an article that appeared locally by a real estate attorney that stated banks are going to be less and less inclined to help out homeowners since they have so much money. Hmmm....

Dec 19, 2010 03:02 PM #5
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Folks in NC are very furtunate to have this law on their side. ALL sellers facing foreclosure need to seek legal advice. They do have options.

Just walking away from the situation shouldn't be one of them. I find this surprising. The law should not apply for folks that just walk. At least that's my opinion.

Dec 19, 2010 11:38 PM #6
Renée Donohue
Savvy Home Strategies Realty, LLC-REALTOR®-Estate-Probate - Las Vegas, NV
Las Vegas Real Estate Broker -

I agree with BB that all sellers facing foreclosure should get legal advice.  It makes sense to do a short sale for some but not for others.  This law sounds like it favors NC short sale sellers!

Dec 20, 2010 10:08 AM #7
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Debe Maxwell, CRS

Charlotte Homes for Sale - Charlotte Neighborhoods
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