Will You Ever Have to Pay a Deficiency Judgment From a Foreclosure

When a foreclosure is finished and the home is sold or assessed by an assessment of losses on mortgage loans, the deficit amount the bank will not come back from the mortgage balance and expenses due, is called a deficiency. In most states, the lender an opportunity to get a conviction in that amount against the borrower and this is called a "lack of conviction". Besides the loss of homeowner home he also has the potential to repay this ruling in the future.

Even if the bank accepts a "deed instead of foreclosure" they can still get a deficiency judgments against the borrower. The borrower is the one responsible for the mortgage or deed of trust payments and he may or may not be the homeowner. If the homeowner has a co-signer of the co-signer will be as legally responsible as a borrower must pay back the deficit is due. Depending on whether the foreclosure is judicial or extrajudicial, and the specific conditions of mortgages, the bank may not be able to seek a deficiency judgment. These laws vary state-by-state and should be reviewed carefully to determine which apply to the reader.

The Bank has not only the amount of the unpaid loan balance due but also legal fees, accelerated interest payments, back installments, in some cases prepayment penalties and other expenses as part of the cited amount. That is why a homeowner who has had his mortgage a couple of years could owe more than he originally borrowed. As an example, borrowed the homeowner $ 200,000 in June 2006 and in January 2008 he goes into foreclosure, and the final verdict on him to $ 218,000! This is because of the additional expenses and the fact that he pays mostly interest in the first 10 years of his mortgage.

The largest loss the lender has is his loss of ability to loan about 70-10 times the unpaid mortgage balance. This is because the Federal Reserve requires banks to put money into a non-interest bearing account to cover potential losses. Since the bank can no longer use these funds for additional loans from the Fed, he is losing tremendous loan power. This loss of revenue to the lender can not be passed on to the homeowner or borrower.

The main factors in deciding whether the lender will pursue a deficiency judgment is whether the lender feels that he can collect judgments and costs to collect it. In the process of working with the homeowner, lender withdraws his credit and can see what other outstanding bills he has and whether they are paid on time. Lender can not see what assets homeowner has but can sometimes see how he works. Homeowner will be asked to complete a Net Worth Statement ("NWS") which will disclose these assets to the lender. This document is an important part of the decision to pursue a conviction or not. If the lender has no reason to believe that homeowner has extensive assets, they will issue IRS Form instead. A note of caution - falsifying the NWS can be bank fraud in some states so be careful if you want to return the NWS to the lender.

Lack judgments determined by the court-approved "Final Judgement" amount in most states. However, in some states, the property is sold or an appraisal done to determine the "expected" net loss. If your condition makes this approach when assessing, disputing the assessment and have cited reduced if you think it was not correct.

The lender usually chooses not to have a deficiency judgments and instead report the loan shortage amount of IRS Form 1099th The result of the homeowner is a "phantom income" requires him to pay income tax on that amount. In this situation the final cost of a guarantor foreclosure is the amount of income taxes he pays the IRS instead of the entire deficiency cited. This is a substantial savings for the homeowner and lender also benefits because there is no collection of his books that is counted as a liability. Unless there is suspicion of fraud in the original loan, the lender will issue a 1099th In December 2007 was adopted, which allows a maximum exemption amount that a homeowner who lives in his property can write off for this deficiency amount.

Carefully consider your rights and options when you make a decision to allow your home to be lost to foreclosure, as there are solutions besides foreclosure and deed transfer to the lender. Do not be paralyzed by fear that the lender will follow you forever to collect the missing judgments that you have a number of ways to combat this including attacking the validity of the original loan.