Do lenders go after deficiencies after foreclosure?

A home foreclosure is a stressful situation, but sometimes it brings a certain sense of relief: the fact that a mortgage loan is off of your hands can be a serious reduction of financial turmoil, even if it means a black mark on your credit. However, what if foreclosure, loss of your home, and a black mark on your credit history aren’t enough punishment? What if you’re still held liable for the balance of the mortgage even after all of this? 

It happens, and quite frequently under foreclosure deficiency laws.

• Homes sold in foreclosure are often sold for much less than their market value and/ or the amount that was still owed on the loan. 
• In some states, this is the way the chips fall and the lenders must take the loss, but in others, it’s perfectly legal for them to pursue the original buyer in order to collect the leftover amount, known as a deficiency. In a time when the economy is tough, more and more lenders are doing just this.

In some states, laws prohibit collection on deficiencies in this manner; in other areas, it’s only allowed on second mortgages or equity loans.

Should you receive notice after a foreclosure that you still owe the leftover sum of the mortgage loan even after the house is no longer yours, you should call a lawyer in your area immediately. What is happening is probably legal. If you’re in a situation of financial hardship, it may go no further than a few attempts at collection, but knowing what you’re up against and ensuring your rights are protected by your lawyer is key.