Lenders Chase Borrowers for Money Lost in Foreclosures
In many states -- such as Florida, Illinois, New York, Texas, and Virginia, to name a few -- lenders have the legal right, known as a deficiency judgment, to go after borrowers who owe money on their foreclosed home. The lender can reclaim the losses on the difference between the selling price of the distressed home and the amount owed on the home, also known as a deficiency.
In Virginia, Maryland and Washington D.C., where deficiency judgments are permitted by law, lenders are aggressively seeking to recover monetary losses from foreclosures and short sales, reports The Washington Post.
But what will this mean for foreclosure victims who still don't have the cash to repay their debt?
Who will be pursued depends on the current financial situation of those who faced foreclosure.The lender will determine whether the borrower can now pay all or part of the debt and can repossess what is owed.
Except one expert says there's a reprieve for people who are still in a crisis -- and don't have any assets -- following an eviction or a loss of a home.
"Lenders are not going after people who face a hardship," said John Mechem, a spokesman for the Mortgage Bankers Association. "If they can't pay their mortgage because they have a loss of income, there is no point in going after them."
However, as home values plummeted, those who got in over their head and walked from a house as a strategic decision to not bleed out more money -- as opposed to be being completely bankrupt -- are more likely to be hearing from their lender.
Another target are borrowers with a second mortgage, especially a home equity line of credit, or HELOC, who may be probed by secondary lenders, as they usually benefit the least when foreclosed or distressed homes are sold.
Deficiency judgments existed before the housing bubble popped, but because of the comparatively small number of foreclosures back then, there was little incentive to track down delinquent borrowers. But today, with almost 3 million foreclosed U.S. homes in 2009 and more feared for 2010, lenders may have realized that the cost is too big to not recoup some of the money.
To find out if deficiency judgments are allowed in your state, visit the Web site, www.foreclosurelaw.org.