Your lender may obtain a deficiency judgment against you after a foreclosure proceeding for the difference between the proceeds from the sale of your home at a foreclosure sale and your loan balance. However, you can avoid the judgment if you negotiate in writing with the lender prior to the foreclosure that they will not pursue one against you. Another way to avoid a deficiency judgment is to file for Chapter 7 bankruptcy protection. The judgment is wiped out in a Chapter 7 bankruptcy after the bankruptcy is discharged. If you don’t have any assets or all your assets are exempt from creditors, then you don’t have to worry about the lender being able to force you to sell your assets to collect on the judgment.
Why Lenders Don’t Usually Pursue Judgments Against Borrowers
While you should be aware of the possibility that you may be subject to a deficiency judgment, most of the time lenders don’t pursue them for the following reasons:
- It's bad business to sue a customer that they may want to do business with again some day
- Getting a judgment costs a lender time and money to go to court to file a lawsuit against you. Lenders have already spent money pursuing the foreclosure. They have lost money on your house because the value of the property has gone down. If the home does not sell at an auction, then they have to spend more money to sell the home by hiring a Realtor and paying commissions, making minor repairs and paying taxes and insurance on the home. Lenders are not about to waste more money trying to pursue a judgment they probably won’t be able to collect if you don’t have any assets or your assets are exempt.
- They don’t have a current address to serve you with a judgment
Lenders know that if you had assets in the first place, you would have sold them to pay off your mortgage to avoid foreclosure. You may be able to get the judgment overturned if your lender did not serve you at your proper address. An attorney can help you with fighting a judgment.
Use an Attorney
If your lender does pursue the judgment against you, it is recommended that you hire a foreclosure defense attorney to get the lender to dismiss the judgment. Foreclosure laws are extremely complex, and only an attorney understands them and is experienced in handling these matters. It is in your best interests to use an attorney to assist you.
