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Posted October 27th, 2011 under Underwater Mortgage Pitfalls

Underwater Homeowner Trap 1: Can the Bank Still Come After Me?

Tags: underwater mortgage, mortgage help, short sale help, foreclosure help, mortgage information, anti-deficiency laws, mortgage default, deficiency judgment

Underwater Homeowner Trap 1: Can the Bank Still Come After Me?

In the blog article Underwater Mortgage? You Can Be Better Off Than You Think. Really! we talked about how a mortgage default (foreclosure) – which many homeowners consider to be the option of last resort – could leave you far better off five years from now than taking no action at all to get mortgage relief.

But – and this is a big but – it is incredibly important that you understand foreclosure laws and what the mortgage holder (bank) legally can and can’t do after a foreclosure. Here we’ll talk about one biggie: deficiency judgments. We hear the question a lot: After a foreclosure, can the bank still come after me for what I owed? The short and incomplete answer is that in some states no, in other states yes.

Some states have anti-deficiency laws that protect you from being sued by the bank after a foreclosure.

These laws prevent the bank from pursuing a deficiency judgment – coming after you for the difference between the amount you owe on your mortgage and the price the bank sold the home for (either at auction or as real estate owned). But even if your state has an anti-deficiency law those laws do not protect every homeowner in every case.

But what if you live in a state that doesn’t have an anti-deficiency law?

If your state allows deficiency judgments after a foreclosure, then your lender can come after you for the money you technically owe them. What this means is that if your foreclosed home sold for less than what you owed on your first mortgage, your lender can take you to court to get the rest (the “deficiency”).

Now, just because the bank can pursue a deficiency judgment doesn’t mean the bank will. Lawsuits are expensive – even for mortgage lenders. Deficiency judgments after a foreclosure are fairly uncommon, probably because most homeowners who default don’t have a pile of money sitting in the bank to pay off the lender in the first place. (That said, banks certainly made a big fuss over the rise of strategic mortgage defaults among homeowners who could afford to pay the mortgage.)

How does a potential deficiency judgment play into your decision about what to do with your upside down house? Let Homeowner 101 help you determine if you live in an anti-deficiency state and, if you do, whether you’re fully protected by the anti-deficiency laws. If you don’t live in an anti-deficiency state, we’ll talk about what is likely to happen after a foreclosure, including what the bank will likely do with the promissory note and for how long you might be liable for the deficiency.

When you make the decision about what you’ll do to find mortgage relief, you want to be aware of the potential pitfalls – deficiency judgments being one of them. When you sign up for a one-on-one personalized Underwater Homeowner Assessment and Action Plan we’ll go over all of your options and all of the potential pitfalls you need to be aware of.

This blog article is not construed to be legal or financial advice; we can only advise you once we understand your unique financial and homeownership situation (that’s what the Underwater Homeowner Assessment and Action Plan is for).