Rhode Island is twenty-sixth in the nation in foreclosures as of last year, and when there are more foreclosures, there is a good chance there are going to be more deficiency judgments Rhode Island homeowners have to face. A deficiency judgment is a court order for a homeowner whose home was sold in a foreclosure auction for less than the remaining mortgage debt, is required to pay the difference. Not all states allow deficiency judgments, but Rhode Island is one that does. Many struggling homeowners are looking for a way out of their financial problems that does not include facing a deficiency judgment.
Rhode Island Foreclosure Laws
In Rhode Island, when a buyer obtains a mortgage for a home, the lender puts a lien on the home, securing that mortgage. If the homeowner defaults on the loan, the lender has the right to foreclose. In the past, most mortgage defaults were processed as judicial foreclosures, where the lender had to go to court t obtain a lis pendens, allowing the lender to sell that home at auction. More mortgages are being written that allow non-judicial foreclosures in Rhode Island in recent years, however.
If a home sells at the foreclosure auction for less than the mortgage debt, the lender may ask for a deficiency judgment against the owner for the difference. In addition, if the home does not sell at all, the bank takes possession of the home and the “sale” price is considered to be fair market value. Again, the homeowner can face a deficiency judgment for the difference between the remaining mortgage and the fair market value price, as well.
Foreclosure Alternatives
For many homeowners, their best hope is to find an alternative to foreclosure. Even if they cannot save their home, they may be able to avoid facing a deficiency judgment on top of that loss. In some cases, these judgments can reach $50,000 to $100,000 and more. For someone who has already damaged their credit rating and lost their home, that may be a difficult blow from which to recover. For them, one of these alternatives to foreclosure may be the answer:
- Selling their home, hopefully for fair market value or better. If not, they may be able to get their bank to agree to a short sale, by which the lender accepts an offer lower than the mortgage debt to fulfill the mortgage agreement. It is important to get this agreement in writing to make sure the lending institution does not try to file a deficiency judgment later for the difference.
- Transfer the home back to the lender as complete satisfaction for the mortgage. This deed in lieu of foreclosure may also result in a deficiency judgment unless there is a written agreement that none will be pursued.
- Filing for bankruptcy may be the last resort, but a good choice. It may allow the debtor to discharge enough other debts to allow them to catch up on their mortgage and get back on track with their monthly payments.
Getting Legal Help with Rhode Island Deficiency Judgments
The truth is, most banks do not want more property. They have had enough foreclosures; they want to recoup their financial losses. If a homeowner and their foreclosure attorney can negotiate another option, lenders may be more willing than ever to agree. However, these are not easy negotiations and without a lawyer with effective negotiating skills, the process may fail.
