If you decide to let your over-valued and highly-financed property go into foreclosure, leaving the bank holding the bag, you might be facing more than bad credit and the loss of your down payment. The lender has recourse. They can sue you for the difference between what they sell the home for and the amount you owe with fees. It is called a deficiency judgment. I previously wrote about them in May, 2008 (check out comments on blog as well). In New York a lender has 90 days to file a deficiency judgment against the borrower after the sale of a foreclosed home. I didn't see a 90 day requirement in Florida. Could you get slapped with this judgment a year after a foreclosure sale? Also, banks aren't selling the properties right away. The banks can't get the judgment until the home is sold. What if the sale takes a year or two? In California you can't get deficiency judgments unless it is a judicial foreclosure (which is rarely used in California) but most other States allow these judgments. According to Foreclosure Fish, they don't think you should worry too much about the deficiency judgment, but I think they might be wrong if there are wages available to be garnished. Here is their reasoning for thinking you won't get hit:
If the state in which the first property is located allows for deficiency judgments, then the bank could theoretically sue after the sheriff sale of the house. However, they can not just automatically put a lien on any other home or property, or garnish wages; the lender would have to take the homeowners back to court, hire local attorneys to file the lawsuit paperwork, get the judgment from the court, and try to have it enforced in the county to where the homeowners have relocated after moving out of the foreclosed home.
So, after the bank has already lost a lot of money on the sheriff sale of the property in foreclosure, they are going to spend even more money and resources chasing after another judgment against the homeowners who were unable to pay the mortgage or first judgment. The first judgment, for the foreclosure, was a waste of their time, since they just got stuck with a property that may be worth far less than what they had loaned on it, and many homeowners face foreclosure because of a financial hardship that seriously alters their income...In fact, since the foreclosure victims are no longer the owners of that house, the court may not even know where to serve them the paperwork for the lawsuit.
I think it is worth the bank's time to pursue these judgments in Florida as there was a lot of speculation. There are plenty of available wages to be garnished. I also think that Foreclosure Fish is wrong about people disappearing. It is not hard to find the people since most are happily (and stupidly) putting their whole life online. As far as the attorney cost, I think a deal will be struck, offering attorneys volume and a cut. With this many foreclosures in Florida (56,656 in 2008 in Miami-Dade County alone), the banks just might start using deficiency judgments, so watch out, I see new business on the horizon for creative attorneys.
15 comments:
By the way, speaking of banks and foreclosures: fees for the filing of a normal law suit was recently raised to almost 400.00 to help cover court operation deficients in Dade County.
The filing fee for banks in foreclosure actions was raised to over 800.00, actually almost 900.00.
I don't guess that is because the court feels sympathetic towards the average plaintiff. I suspect the court operations folk know where the pot of gold lies these days.
I will bank on the incompetency of lenders and take my chances.
Don't forget that even if a bank goes after the deficiency judgment the borrower has a possible recourse in bankruptcy court since they would probably be insolvent at that point. So the bank would be out the deficiency and the money to try to collect it.
I agree with Genius. The Banking industry is so greedy that they will try anything to put a squeeze on folks.
I see it as an opportunity to squeeze people to settle and the banks will recoup a little or they could get a long term judgment so if the former homeowner ever turned their life around they would have to pay up.
Sort of like a slap suit... a law suit made to intimidate.
The borrower with a job gets garnished.
IMHO, the banks would only go after the big fish...
the banks are not wasting their time and money on deficiency judgements. Instead they are telling homeowners who own other property in their name that they will attach a lien for the difference to other properties or if the property can be sold prior to foreclosure then the difference on the short sale will be put as a second note attached to another property if they want the lender to approve the sale. Lenders are lazy and only want the easy way to the money..
It must be understood that very few banks own the notes. Most foreclosures are FRAUD. The banks sold their interest to investors. Banks have been paid in full already for these homes they're illegally foreclosing on! Everyone MUST CHALLENGE THE BANKS. Demand they produce the original notes!! They can't. They sold them to investors. They are screwing the investors and the homeowners. If they sell the homes the homeowner could still be liable to the investors that really paid the bank for the note. DEMAND THE BANK PRODUCE THE "ORIGINAL NOTES AND DEEDS/MORTGAGES! CHALLENGE THEM! You can even do it in nonjudicial foreclosure states.
Exactly.....banks used a company called MERS. Recently, several cases have ruled on behalf of the homeowners when the bank couldn't produce the note....
"no tickie....no take-y" as they say...
Google MERS.
We have been discussing this topic for sometime over on our blog:
http://www.TimandJulieHarris.com
Hope this helps!
You guys are missing something: Today, collection agencies buy delinquent credit card debt and basically any other type of collectible delinquency. That said, there will be investors who will buy out these delinquencies from the banks and try to collect the money. Nobody walks away from an asset with some fungible value and thus the banks won't walk away from these either.
Think about it. As an investor would you pay $.01 on the dollar for these delinquencies? Of course, you would.
Even if a deficiency judgment is successful, bankruptcy would take care of it. Imagine someone who is deficient over $100,000 (very common in Florida). Think of a deficiency judgement as nothing more than a $100,000 credit card. The odds of a court wiping it away is very high. The banks know this, so most of the time they won't bother.
We are not talking about people who face bankruptcy. There are plenty of people walking away from properties with good jobs and equity.
Bankruptsy is not always an option. We can't pass the means test and have $100k in 2nd and 3rd mortgage. Realtor told me these are being sold to debt collectors for .05 on the dollar. With 200k in student and personal loans and a 68% loss of income from last year, what chance do we have to fight back? Nonjudicial in MN
"...bankruptcy would take care of it..."
To make a blanket statement like that is strange to me. For some, certainly, bankruptcy will take care of it but for many it won't particularly since nowadays, bankruptcy isn't so simple anymore. You have to prove to the court that you have no other way out or they can and will put you on a payment plan or some other thing. All of these things point to the reality is that the banks won't likely simply walk away. They will likely sell them to collection agencies even if at big discounts. It is their fiduciary responsibility to at least attempt to maximize use of their assets.
In July of 2008 I lost my job. What was once a two family income shrank to one. After months of searching-- no job to be found. My wife and I resolved to move our family to Kansas City (which had granted my wife a job opportunity.) After various financial troubles, 2009 can only be labeled "As the year best left forgot." To my chagrin my hell year has decided it was not quite done with me or my family. I received a Final Judgement Notice from my foreclosed house to the tune of $172k and some change, and still my house has not been put to the block (house located in Port Charlotte, FL-- Bank holding note is Deutch Banke). I can only assume with one main income and us living with my mother :(, and having no major assests-. Bankruptcy is our only option... Any advice.. or anything? I need a lifeline call here to the great internet void.
Post a Comment