Deficiency judgment is refers to the difference between the amount that the house was sold for and what you owe the bank. What happens next is that the bank will do nothing on your remaining debt. However, five years later, they will go to court and obtain a judgment to your remaining debt. After they have a judgment, they have 20 years to collect on the judgment. You can’t run from any of these since they have both your social security numbers from the days when you were married and owned the house with your spouse. Therefore, collecting on the judgment would be easy for them. If you are unable to pay your debts on time, they can garnish your wages and confiscate some of your personal property to fill in your debts. As long as you were on the title and deed to the property at the time it went foreclosure and the judgment of divorce does not clear you from the responsibility for the debt. To prevent this dilemma from happening, you should negotiate with your lender at the time of the short sale.

As soon as the lender gets hold of a foreclosure deficiency judgment against you, they can immediately act to implement the judgment. This will be implemented by garnishing your work, halt your bank accounts or worst, they can take away your other personal property. However, you have few options when it comes to mortgage deficiency if the lender is authorized to obtain a foreclosure deficiency judgment. First option would be bankruptcy. You can opt to file for bankruptcy protection to protect yourself and your property. On the contrary, it usually requires an attorney who may cost you a lot compare to the restitution for your debt. Moreover, your credit is damaged for an additional three years because a foreclosure only remains on your credit history for seven years but a bankruptcy will last for ten years. For you to avoid this kind of dilemma, you have to take care of the problem before it becomes worst.

Talking about dealing with a mortgage deficiency through a foreclosure or a short sale, you must discuss with the lender the amount of foreclosure deficiency judgment. You can choose to use a firm that is experienced in dealing with foreclosure deficiency judgment and negotiation processes for you to obtain a better settlement rather than attempting to do this on your own. You must never ignore a foreclosure deficiency judgment because before you know it, you will be facing a bigger problem. The finest way to deal with this problem is to be proactive. Get help from an experienced firm that will be able to negotiate on your behalf and obtain the best settlement possible and go on with your life happily without having to continue to pay for the debt for years to come.

The deficiency is like any other unsecured debt and as such is legally the same to credit card debit, medical debt, or a payday loan. The law authorizes an action for a deficiency judgment for the balance due upon an obligation for the payment of which a deed of trust or mortgage with power of sale upon real property or any interest therein was given as security, as specified. The law also forbids a deficiency judgment in any case in which the real property or an estate for years therein has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.

Many people are turning to things like the “short sale” to avoid foreclosure. Simply put, a short sale in real estate refers to a sale that falls “short” of a loan balance due. When sold this way, the bank (or other lending institution) agrees to allow the sale of their security (the property) for an amount that is less than owed to them.

The short sale process is almost always better than foreclosure for a number of reasons. There are many reasons why homeowners may do this, one of the biggest is an acknowledgement of the decline in the value of the property due to economic conditions. Banks realize that many homes are worth less than the balance of the loan, and they have been attempting to work with home owners to sell their homes and pay off their mortgages.

Perry Knox, an auctioneer with Mark Volk Realty & Auction Company said, “During these current economic challenges and the implosion of the Real Estate Market, Lenders are more often accepting Short Sale Options now than they were just 3 years ago. If a lender agrees to accept less than the amount owed on a mortgage that does not necessarily guarantee the difference will be forgiven by the lender and this should be negotiated during the Short Sale Process.” In California if the loan was used as purchase money they can not put a deficiency judgement against you.

According to Knox, the short sale process is almost always better than foreclosure for a number of reasons. For example, the lender may agree to “write-off” the short fall on the mortgage and the homeowner will not be required to pay that back. Even in that case, there will most likely be a “write-off” on their credit report (which is still better than a foreclosure and possible subsequent bankruptcy, according to Knox and others.)

A short sale may prevent bankruptcy, which could enable the homeowner to possibly re-purchase a home and secure a mortgage without the 3 year delay associated with a foreclosure. It makes sense to see what your options are before making a decision.

To be eligible for a short sale, the bank wants to see a loss of income. The bank also wants to see if the homeowner to write a letter of hardship.

According to Knox, “A homeowner in this position that does not see the ability to bring the mortgage current and is out of options with the lender should contact a broker right away and have them do a Broker’s Price Opinion (BPO) on what the current market value of the property is. If upon signing of a listing agreement and a preliminary acceptance of a BPO by the Lending Institution, you may have just gained a little time before a foreclosure. Typically a Lender will delay Forclosure if they know that there is a Broker out there trying to sell the property, while working with a cooperative seller, for a premiliminarily approved sale amount.”

When making the final decision on whether a short sale is the better option, homeowners should take all this information to heart and work with someone who knows the entire process and has been through it before.

One of the best pieces of advice I could offer a homeowner that has begun a Short Sale Process with a Broker/Agent is to work with that Broker/Agent carefully and properly prepare your home for showings and be timely in producing required documents as they become necessary for the Lender, Just because the Short Sale Process is accepted does not mean Foreclosure may not happen. The Broker/Agent has only a limited time period to gain an Offer to Purchase from a prospective Buyer.

If the property continues to deteriorate and does not show well, a prospective buyer is less likely to make an offer and foreclosure becomes more of a reality. By acting within the timeframe, many Hoosiers are finding an alternative to foreclosure that works for them.

But industry insiders and legal experts say the limited capacity of mortgage companies is not the primary factor impeding the government’s $75 billion program to prevent foreclosures. Instead, it is that many mortgage companies are reluctant to give strapped homeowners a break because the companies collect lucrative fees on delinquent loans.

Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees for insurance, appraisals, title searches and legal services.

“It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen,” said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial. “I don’t think they’re motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It’s a license to do whatever they want.”

Rich Miller, a governance project manager at Countrywide Financial and Bank of America before he left in January, said Bank of America had been reluctant to modify loans, which hurt the bottom line. The company has been waiting and hoping the economy will improve and delinquent customers will resume making payments, he said.

“That’s the short-term strategy,” said Mr. Miller, who oversaw training programs at Countrywide, which was bought by Bank of America. He now works as an industry consultant.

Bank of America disputed that characterization. “To think that somehow or other we would jeopardize investor relationships and customer relationships for the very small incremental income we would receive by delaying seems ludicrous,” said Robert V. James, the bank’s senior vice president for mortgage operations and insurance. “It’s not the right thing to do.”

Mortgage companies, some of which are affiliated with the nation’s largest banks, are paid to manage pools of loans owned by investors. The companies typically collect a percentage of the value of the loans they service. They extract their share regardless of whether borrowers are current on their payments. Indeed, their percentage often increases on delinquent loans.

Legal experts say the opportunities for additional revenue in delinquency are considerable, confronting mortgage companies with a conflict between their own financial interest in collecting fees and their responsibility to recoup money for investors who own most mortgages.

“The rules by which servicers are reimbursed for expenses may provide a perverse incentive to foreclose rather than modify,” concluded a recent paper published by the Federal Reserve Bank of Boston.

Under the Obama administration’s foreclosure program, a servicer that modifies a loan for a homeowner collects $1,000 from the government, followed by $1,000 a year for each of the next three years. A senior Treasury adviser, Seth Wheeler, said these payments amounted to “meaningful incentives to servicers to help overcome the challenges and competing demands they face in considering and completing loan modifications.” He added that mortgage companies “are contractually obligated to the terms of this program, which require them to offer modifications to qualified borrowers.”

But experts say the administration’s incentives are often outweighed by the benefits of collecting fees from delinquency, and then more fees through the sale of homes in foreclosure.

“If they do a loan modification, they get a few shekels from the government,” said David Dickey, who led a mortgage sales team at Countrywide and Bank of America, leaving in March to start his own mortgage advisory firm, National Home Loan Advocates. By contrast, he said, the road to foreclosure is lined with fees, especially if it is prolonged. “There’s all sorts of things behind the scenes,” he said.

When borrowers fall behind, mortgage companies typically collect late fees reaching 6 percent of the monthly payments.

“For many subprime servicers, late fees alone constitute a significant fraction of their total income and profit,” said Diane E. Thompson, a lawyer for the National Consumer Law Center, in testimony to the Senate Banking Committee this month. “Servicers thus have an incentive to push homeowners into late payments and keep them there: if the loan pays late, the servicer is more likely to profit.”

She cited Ocwen Financial, which reported that nearly 12 percent of its income in 2007 came from fees to borrowers.

Paul A. Koches, Ocwen’s general counsel, said: “We’d prefer that to be zero. The costs associated with our delinquent loans are in every instance in excess of the late fees.”

Its no wonder we are in the situation that we are in right now. The banks are taking advantage of the suffering home owner. This all needs to end we are living a mess.
Angel

Note that Fannie Mae guidelines allow a seller to immediately apply for a new loan to buy another home if that seller kept the payments current, had no delinquencies exceeding 30 days and did not agree to repay the debt relief. Moreover, it’s the late payments that affect your credit report, not the short sale.
About.com

I get this question all the time out in the field. With all the guidelines changing so rapidly I won’t be surprised if new programs will be available for buyers affected by a Short Sales. If a seller goes through a foreclosure they are looking at a 5 to 7 years before they can purchase again.
Angel Lynn

The 5 Mistakes Are:

1. Stop Paying Without a Plan — depending on the bank you can actually start a loan workout / modification or a short sale without stopping your payments! Other times you may need to stop paying to get their attention (or because you simply don’t have money!) Angel will never tell you to stop making your payments without making sure you understand the consequences.

I think this turned out to be a pretty nice first video with some valuable tips… what do you think?