Mortgage Holders Aggressively Pursue “Deficiency Judgments.”

Mortgage holders aggressively pursue deficiency judgments.

Love Gone Sour, Suspicion, and Bad Debt (Photo credit: Wikipedia)

Mortgage Holders Aggressively Pursue “Deficiency Judgments.”

In 41 States creditors are allowed to sue for the difference between what they receive at foreclosures and the amount actually owed on the mortgage. There are several reasons why you don’t hear about this happening more often. Historically Banks seldom bothered to follow through on this procedure because of the high likelihood that the creditor would be judgment proof anyway.  Mortgage Holders Aggressively Pursue “Deficiency Judgments” only when it does not appear to amount to throwing good money after bad money.

Landscape Changed by Numbers

Today the sheer force of numbers makes the enforcement of this procedure increasingly worth while for Banks,  in many cases even if they have to wait for the money. The wait can be long and the result is far from certain. The average amount of deficiency judgments has been estimated at $100,000.00.  Borrowers must wait for 3 years to apply to the FHA..  Fannie Mae and Freddie Mac require a 2 year wait with a 20 percent down payment or 4 years wait with a 10 percent down payment.

Debts Sold to Third Parties

If the banks don’t want to tie up their own legal departments many of them will sell the debt for considerably less than face value to a third party. Debt collection agencies frequently buy up other types of bad debt such as credit card debt for 7 cents on a dollar.  Because of even greater difficulty collecting, deficiency judgments typically go for 2 cents on a dollar  If Mortgage Holders Aggressively Pursue “Deficiency Judgments” the interest continues to grow.  The judgment remains valid for up to 20 years in most States and the creditor’s only way out is bankruptcy.

This trend only reinforces the motivation for those in mortgage trouble to work out a short sale with the bank’s cooperation. Short sales usually involve a waiver of the deficiency judgment rights by the creditor as part of the consideration for the cooperation of the debtor.

Deficiency Judgments Cannot be Pursued in “Non Recourse” States

The term “non recourse” means that it is illegal for a mortgage holder to pursue the borrower for its loss.  The following are non recourse states:

  • Alaska
  • Arkansas
  • Colorado
  • Connecticut
  • Idaho
  • Minnesota
  • North Carolina
  • North Dakota
  • Texas
  • Utah
  • Washington

Income tax may be assessed on the amount of forgiven debt.  The Mortgage Forgiveness Debt Relief Act that offered borrowers relief from this problem expired at the end of 2013.

 

 

When trouble is at the door don’t hide.  Answer, negotiate so your Mortgage Holders Aggressively pursue deficiency judgments problems are resolved.

 

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After practicing law for 37 years Edward F. St. Onge, Sr. now devotes all his time to helping consumers achieve a high credit score with amazing speed. Learn the counter-intuitive secrets to credit scoring through his down to earth instructions backed by extensive knowledge of the laws and trends. All of the latest tricks and techniques that they don't want you to know now at your disposal. At last a level playing field for the consumer!

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