There are no statistics on the number of deficiency judgments Tennessee reports every year, but if the foreclosure statistics give any indication of the financial situation in the state, there are many struggling homeowners right now. It is important to know the facts about a foreclosure, learn the alternatives, and make a wise decision about what to do when a foreclosure is imminent. Deficiency judgments can create additional havoc in already taxed financial situations, leaving the former homeowner in worse debt than ever, or with the threat of that debt hanging over their head for years to come.
Deficiency Judgments in Tennessee
A deficiency judgment is a court order to pay the difference between a foreclosure sale amount and the mortgage amount. In some cases, this can be thousands, or even hundreds of thousands, of dollars. Some states do not allow deficiency judgments, but Tennessee does, so homeowners should beware.
Once a homeowner goes into default on their mortgage, their lender can begin foreclosure proceedings through either judicial or non-judicial means in this state, depending on the wording of the mortgage. If the mortgage has a power of sale clause, it allows the lender, with the help of an attorney, to foreclose and sell the property at auction. If the property sells for less than the fair market value, or if the property does not sell at all and the bank takes possession, the state allows the lender to go to court and request a deficiency judgment for the difference.
In these troubled times when banks are inundated with foreclosures, many will not go to the time and expense of instigating deficiency judgments. However, there are no time limits on when they can seek such a judgment, so a former homeowner may face years of uncertainty.
Alternatives to Foreclosure
There are other options for a homeowner who is unable to maintain their mortgage payments. In fact, many of those alternatives are much better than a foreclosure, both for the homeowner and the lender. Those options include:
- Short sale – in which the homeowner receives an offer on the house that is less than the remaining mortgage amount. The homeowner may then negotiate with the lender to accept that short sale price as satisfaction for the loan. That agreement must be put in writing; however, otherwise the lender could seek a deficiency judgment for the difference between the short sale and the remaining mortgage.
- Deed in lieu of foreclosure – in which the homeowner transfers ownership of the home directly to the lender as satisfaction for the remaining mortgage. Again, this should be agreed upon in writing to avoid deficiency judgments.
- Chapter 7 bankruptcy – by which the homeowner can temporarily stop a foreclosure, discharge most of their debts, and possibly claim their home as an exemption. However, if they cannot use their new freedom from other debts to catch up on and continue their mortgage payments, the lender could still foreclose.
- Chapter 13 bankruptcy – by which the homeowner can temporarily stop a foreclosure, devise a debt repayment plan within their means to pay off unsecured debt and catch up on their mortgage, and save their home.
Getting Legal Help with Tennessee Deficiency Judgments
It is often vital for a homeowner to consult a foreclosure attorney before giving in to foreclosure. It may seem impossible to avoid, but a legal expert may find options that will allow the debtor to save their home and avoid deficiency judgments as well.
