Homeowners facing foreclosure are generally concerned that the auction of their property will not be the end of their monetary and legal worries. The threat of a deficiency judgment becoming initiated by the lender right after the sheriff sale is often getting raised by foreclosure consultants, attorneys, and representatives of the bank trying to wring far more cash out of borrowers. But discovering actual instances of deficiency judgments against the typical homeowner is often really complicated.
Is this an indication that banks aren’t pursuing deficiency judgments, or is it merely that these varieties of lawsuits are so rarely mentioned? Finding actual statistics relating to this type of lawsuit is hard, and proving that they are rare may be much more attempting, as it’s almost impossible to prove a negative. The absence of judgments against homeowners does not mean that they’re by no means brought; following all, perhaps each and every foreclosure victim defends the case and wins. Or these lawsuits are just rarely talked about. Or maybe former homeowners have deficiency judgments against them but, since they moved out of the home where paperwork was served, they are not even aware of it.
So obtaining evidence of deficiency judgments following foreclosure is not effortless. Not for me, and seemingly not for other researchers on the net. Frank Llosa from FranklyRealty.com also wonders where these lawsuits are and comes to some of the very same conclusions as we have, despite the fact that he approaches it from the angle of banks bidding on properties at auction for the total amount due on the loan, thereby eliminating the possibility of a deficiency: “Why would they take over the property at $200,000 OVER what exactly is it worth and let the prior owner be releaved [sic] from further obligations?”1
He suspects that the missing lawsuits may well be an indication of the reality that foreclosing lenders, “figure it truly is a waste of time and effort for the banks to go after the homeowner given that they’re broke.”1 This is much the similar seemingly reasonable remedy that I’ve raised before; immediately after all, why would a lender, who has been thus far unable to collect on a foreclosure judgment, invest much more time and money pursuing deficiency judgments against former customers?
The Florida Asset Protection Blog also mentions the possibility of deficiency judgments in cases where a second mortgage is present, but admits no personal experience with such lawsuits: “I have not observed any case to date where a first or a second mortgage lender has sued the homeowner personally.”2 Very same here, and these deficiency judgment laws, in the states and under the conditions in which they are allowed, have thus far confirmed to be unused weapons, comparable in volume of enforcement to jaywalking violations.
Taking a look via actions in the nearby courthouse is also a bit of a wild goose chase, as you’ll find far a lot more foreclosures than deficiency judgments. Actually, you’ll find no deficiency judgment circumstances that I could locate listed in my neighborhood court program. And this is in a state having a fast process and such lawsuits are allowed after the sheriff sale. Dozens of foreclosure situations, each open and closed, are listed, but no deficiency judgment situations involving the identical defendants as the foreclosure instances in any of the listings I could find.
And on-line, instances of this kind of lawsuit can most frequently be discovered in estate instances and auto loan repossessions, but not genuine estate foreclosures. Not surprisingly, this makes additional sense, given that an individual who loses a auto can still be served with lawsuit paperwork at a existing address, vehicle loan outlets have more access to neighborhood courts, along with the small quantity of an auto loan deficiency may possibly be reasonably expected to be paid back.
Due to the fact it appears that deficiency judgments throughout foreclosure are rather rare, why are lenders not pursuing them proper now? As has been discussed here just before, it can be commonly just not worth the bank’s time to sue people who admittedly have little money. About.com states that, “In many instances, your lender will not go towards the trouble. Legal action is pricey and time consuming, and people who just suffered a foreclosure frequently don’t have the assets or income required to satisfy a deficiency judgment.”3 People with no job, assets, or not sufficient income may possibly also be “judgment proof,” meaning that, even if the bank got the deficiency judgment, it could not be enforced or collected.
And when families are made homeless because of the actions of the bank, it may be hard to get a legitimate judgment against folks who can not be reasonably located to be served with court documents. Couple of former homeowners leave a forwarding address when the move out of a property just before eviction, becoming totally conscious of the fact that their lives would be considerably simpler without further correspondence from the mortgage company. Due to the fact the bank suing for the deficiency is clearly also responsible for the fact that the defendants may well not have a current address, former homeowners later claiming the lawsuit was in no way properly served isn’t a difficult argument to create.
Also, an critical point for homeowners to keep in mind is that, if they put down much less than 20% of the acquire price, they are almost certainly paying Private Mortgage Insurance (PMI). Despite the fact that the homeowners themselves pay the PMI premium on a monthly basis, this sort of policy insures the bank against the default of the loan, and if an owner goes into foreclosure, the insurance will pay the bank the quantity of the mortgage left unpaid. Thus, if a mortgage is covered with PMI, the bank can collect the insurance on the policy they forced on the borrowers rather than seek a deficiency judgment. Citifinancial itself states that, “If you have Private mortgage insurance, a lender can use this funds to offset any losses as an alternative to obtaining a deficiency judgment.”4
Now, investors and second home owners who have substantial assets may well be at higher risk of becoming sued than initial homeowners. But this is really a really current 2008 development. Robert Levin from Fannie Mae, announcing changes in the first quarter of 2008, stated that, “We are pursuing deficiency judgment against investors and second house borrowers.”5 Will this be the case in all second property or investment household foreclosures by Fannie Mae? Only time will tell, but there’s nonetheless small evidence that any deficiency judgments have already been pursued therefore far, plus the nationalization of the mortgage giants will in all probability alter this strategy.
The truth is, with the nationalization of the banking method and the Government Sponsored Enterprises, it really is highly unlikely that any borrower whose loan that is taken over by the government is going to be topic to a deficiency judgment lawsuit. Rather, the politicians, in order to soften the backlash against the $700 billion bank bailout and to reassure constituents, will push a great deal harder for loan balance writedowns, interest rate adjustments, along with other loan modifications to make mortgage much more inexpensive for borrowers.
So, it seems that deficiency judgments have been and will stay fairly rare in the mortgage industry. Having extenuating circumstances (lots of land, quite a few liquid assets, clear evidence of mortgage fraud) may possibly put certain owners in danger, but the vast majority who took out loans and then faced an economic hardship will continue to have little to worry about from their bank right after losing a household. You will discover just too numerous difficulties, from serving the lawsuit, to collecting on it, to poor PR, for the banks to believe it can be worth the extra bother.
Sources:
1 http://activerain.com/blogsview/506776/Virginia-Deficiency-Judgement-Judgment
two http://floridaassetprotection.blogs.com/alperlaw/2008/07/deficiency-ju-1.html
3 http://banking.about.com/od/loans/a/deficiencyjudg.htm
four http://www.citifinancial.com/glossary/defin/DeficiencyJudgment.htm
5 http://seekingalpha.com/article/75938-fannie-mae-q1-2008-earnings-call-transcript