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Deficiency Judgement and How To Avoid Them

Deficiency judgment is a judgment passed against a person who is a debtor whose sale of foreclosure did not produce sufficient funds to pay the entire mortgage. When the foreclosure sale does not produce sufficient funds in order to cover entire mortgage, then deficiency judgment is passed against a borrower, defendant or debtor.

This will be really heartbreaking for the person who is facing the foreclosure sale who hoped at least he could live without any burden after the foreclosure sale. That too after all his efforts went in vain to avoid and stop foreclosure sale.

Now the question that arises is how to avoid deficiency judgment. Because if you are faced with the similar situation, you or for that matter no one else like to face the situation and receive deficiency judgment against you. If your house auctioned at a foreclosure sale is sold at a lesser value than the amount that you owned as a loan, then the lender has every right to sue you for the deficiency after the foreclosure sale with in stipulated time period.

Mortgage foreclosure may or may not result in automatic deficiency judgment. It all depends on the legislations of the state. After foreclosure sale the lender will have to move motion for deficiency judgment. This is the time for you to act. If you can prove in the court that your house was sold at the exact market value during the sale date then court will not pass deficiency judgment against you. You can even present the value of your house evaluated by experts or evidence of it through appraisals.

If you are extremely concerned about lender obtaining judgment from the court against you, then you should take the guidance and opinion from the attorney in a professional manner from where you can pursue asset protection strategy with the help of available personal property trusts, land trusts etc. The more harder you make it for the creditor to collect your assists from you, the less likely you are going to get deficiency judgment from the court.

Any retirement funds you have in the form of 403(B), 401(K), IRA or any other programs are protected by banks. If in case you have invested these funds in your other assets or second house then the bank may go after them. This is because investment assets that don’t fall under special designation are not covered under any laws and banks can go after them where as retirement funds are protected and banks cannot touch them.

Before falling into foreclosure you can approach your lender and apprise them about your decision to go in for short sale of those assets. Once you get approval for short sale from your creditors you can infact avoid receiving deficiency judgment in future. But you should bear in mind that under short sale you are going to lose your house. But there are other various options where you can save your home.

Many mortgage companies are aware that house owners who are in foreclosure don’t have money to undergo deficiency judgment. So they know that it is useless to serve deficiency judgment against them.

Tags: bank, credit, law, loan, market, money, mortgage

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