While many states allow debtors who have lost their homes to foreclosure to avoid the additional losses associated with deficiency judgments, the laws of deficiency judgments District of Columbia maintains do not. Lenders have the right to recoup the difference between the foreclosure sale price and the mortgage amount, if the mortgage amount is greater. Those amounts can be significant in today’s market, so debtors should consider every option available to avoid the deficiency judgments District of Columbia imposes.
Avoiding Foreclosure
There are several steps a debtor should explore before submitting to the foreclosure process their lender begins:
- Credit counseling – which can be found free in some cases, acquainting the debtor with plans and methods of cutting spending, living on a budget, and getting back on track with their creditors
- Chapter 7 or chapter 13 bankruptcy – which, after an automatic hold on all debt collections, including foreclosures, provides the debtor with the opportunity to discharge their debts or formulate a repayment plan to save their property, including their home
- Short sales – which allow the debtor to make an agreement with their lender to accept a sales offer on their home that is lower than the mortgage debt amount. These must include a written agreement by the lender not to file for a deficiency judgment
- Deed in lieu of foreclosure – which allows the debtor to transfer their property deed directly to their lender in return for cancelling their mortgage debt and all deficiency judgments that may ensue
Facing Foreclosure
When all else fails, some debtors have no choice but to face a foreclosure. In the District of Columbia, those foreclosures are generally handled out of court, in a non-judicial foreclosure. Most deeds include a power of sale clause, granting permission for a trustee to sell the home at auction if the homeowner defaults.
In addition, District of Columbia law allows any lender to file for a deficiency judgment when the value of the home or the sale price of the home do not equal the amount owed on the mortgage. Often, a lender will forgo such a claim immediately after a foreclosure, realizing that the debtor has few assets to satisfy such a judgment. But there are no time limits on deficiency judgments in the District of Columbia, and if the debtor begins to restore their financial future, the lender may then seek the judgment.
Getting Legal Help with District of Columbia Deficiency Judgments
In many cases, once a foreclosure sale, short sale, or deed in lieu of foreclosure has occurred, it is difficult for even a skilled foreclosure attorney to fight deficiency judgments. However, they may be able to negotiate with the lender for better terms or amounts. In addition, they can provide wise advice to a debtor throughout the default and foreclosure, helping them to choose a better option and helping them to complete it.
