Deficiency Judgment is only effective when it has been approved by the court which is known as “Final Judgment” amount in nearly all states. On the other hand, in some states, the property must be sold to determine the expected net loss. The borrower will be the one who is responsible for the mortgage or deed of trust payments. The bank may not be able to ask for a deficiency judgment depending on whether the foreclosure is judicial or non-judicial.

Deficiency is the deficit amount the bank will not get back from the mortgage balance and expenses due. In nearly all states, the lender has a choice to obtain a judgment against the borrower. On the other hand, these laws are not effective in all states. They vary state-by-state and must be examined thoroughly to determine which is appropriate to the reader. You must weigh your rights and options when you make a decision before letting your home to be foreclosed as there are many alternative and helpful solutions for you besides foreclosure and deed transfer to the lender. Do not be afraid that the lender will follow you forever just to collect the deficiency judgment. Remember that you have several options to fight this including attacking the validity of the original loan.

After selling your house as a short sale, you can still obtain another mortgage. However, there are some certain conditions that are needed and will require you some hard work to renew your credit score and get another mortgage. Before applying for a new home loan, you must review what lead to your short sale to prevent from experiencing another short sale again. You might need to review your financial income and assess yourself if you’re already able to avail another mortgage.

After selling your house as a short sale, you can still obtain another mortgage. However, there are some certain conditions that are needed and will require you some hard work to renew your credit score and get another mortgage. Before applying for a new home loan, you must review what lead to your short sale to prevent from experiencing another short sale again. You might need to review your financial income and assess yourself if you’re already able to avail another mortgage.

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.

Wrong.

Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these “deficiency judgments” are ticking time bombs that can explode years after borrowers lose their homes.

It can even happen to people who got their bank to approve them selling their home for less than it is worth.

Vanessa Corey, for example, short sold her Fredericksburg, Va., home in April 2008. She and her husband built the house in 2004, but setbacks, both personal (divorce) and professional (housing bust), made it impossible for the real estate agent to keep her home. So she negotiated the short sale and thought that was the end of it.

“My understanding was that the deficiency was negotiated away,” she said. “Then, last November, I got a letter from a lawyer telling me I owed my lender $65,000. I had to declare bankruptcy. There was no way I could pay it.”

Many homeowners are now in the same boat. And not just those who took out bigger loans than they could afford or who did so called “liar loans” where they didn’t have to verify their income.

Because of falling home prices, borrowers who always paid their mortgage but who have run into unforeseen circumstances — like unemployment or a job transfer — can no longer sell their homes for what they owe. As a result, they are being forced to short sell or foreclose and are getting caught up in deficiency judgments.

“After the banks foreclose, it’s very common now to have large deficiencies with houses not worth the balances owed,” said Don Lampe, a North Carolina real estate attorney.

Lenders mostly declined comment. Although Corey’s lender, BB&T did indicate it was pursuing more deficiency judgments.

“They follow the rise and fall of foreclosures,” said the spokeswoman, who would not discuss Corey’s account.

Can they come after you?

Whether banks can and will pursue deficiency judgments depends on many factors, including what state the borrower lives in and whether there’s a second mortgage or other liens. But if borrowers ignore the possibility of deficiencies, it could haunt them.

“Once they have a judgment, they can pursue you anywhere,” said Richard Zaretsky, a board-certified real estate attorney in West Palm Beach, Fla. “They can ask for financial records, have your wages garnished and, if you fail to respond, a judge can put you in jail.”

In the case of foreclosure, lenders can pursue deficiencies in more than 30 states, including Florida, New York and Texas, according to the U.S. Foreclosure Network, an organization of mortgage law firms.

Some states, such as California, are “non-recourse” and don’t allow deficiency judgments. But, even there, if the if the original loan was refinanced, some or all of it may be subject to claims.

Deficiency judgments on short sales and deeds-in-lieu can happen in many more places. In these cases, extinguishing the debt is often a matter of negotiating with the bank.

But even when lenders are willing, many borrowers may not be aware that they have to ask for release. So, if you are pursuing a short sale, be sure your attorney asks the bank to release you from any further obligation.

“People shouldn’t have a false sense of security that a deficiency judgment may not be later sought,” Zaretsky said.

He expects many will be filed over the next few years, based on the fact that banks have sold many of these accounts to collection agencies and other third parties, at discount.

“The parties who bought those notes wouldn’t have paid money for them unless they had the intention of acting,” Zaretsky said.

Ticking time bomb

What can be scary is that the judgments don’t have to be obtained immediately. Lenders or collection agencies may wait until debtors have recovered financially before they swoop in. In Florida, the bank can wait up to five years to file. Once the court grants a judgment, the lender has 20 years there to collect, with interest.

It doesn’t have to be a large amount of debt for a lender or collection agency to come after borrowers. Richard Varno and his wife short sold their Nashville home back in 2004 after he lost his job.

It wasn’t until 2008, when the second lien holder asked him for $25,000, that he realized he still was liable.

“I told them, ‘Hey, you guys released the title,’” he said. “As far as I know, I’m off the hook.”

He wasn’t. Releasing title does not necessarily end the debt. It’s complicated because of variations in state law, but, generally, a mortgage has two parts: a pledge of collateral, represented by the home, and a promise to pay off the loan.

Lenders may release property liens in order to facilitate short sales without releasing borrowers from their obligations to pay under the promissory notes. The secured debt can convert to an unsecured one after the sale.”

Lenders are also very inconsistent. One of Zaretsky’s short-sale clients was ready, willing and able to pay, but the bank did not even ask; another lender always reserves the right to pursue the deficiency.

Strategic defaults

Sometimes lenders go after borrowers walking away from their homes if they have other assets, according to Florida real estate attorney Larry Tolchinsky.

If borrowers have any doubts about their risks, they should seek legal advice. Or, at least, call non-profit organizations such as NeighborWorks for advice. According to Doug Robinson, a NeighborWorks spokesman, its counselors always try to negotiate away deficiencies when they facilitate short sales or deeds-in-lieu.

Robinson himself knows what can happen. He paid off a deficiency after his own New Jersey house went through foreclosure 11 years ago.

Published by Yahoo News.

In California the banks can not go after you if the money was purchase money.  If the money was refinance money then they will come after you for the deficiency.  The best scenario is to do a short sale and negotiate the deficiency judgements on refinance money at closing.

ANGEL LYNN

Help in preventing financial damage in a foreclosure.

Some basics to consider when you’ve defaulted on a note to a lender. The note involved in a foreclosure or repossession is an “I Owe You”: a promise and an obligation for you to pay the debt owed to the lender that financed your property. A deed of trust, or mortgage on the property, is the security for that debt. If you’ve had troubles paying your obligations or are no longer capable of making the payments, you are facing a default situation.

When a default situation arises, it’s always better to try to work out a practical solution. There are numerous ways in which creative problem solving may come into play. A first step would be to communicate clearly and early with the lender. You can consider alternatives such as a loan modification, waiving unpaid payments, extending the amortization or lowering the payments. Amending your agreement with the lender may provide you with relief and the lender may allow get paid back or avoid a foreclosure process.

There are several avenues that a lender can pursue in enforcing their rights. When a default on the note is at hand, the lenders legal options with this default are:

Sue on the note

When a case goes to court, the lender can sue only on the note. They may institute a lawsuit in court against the payor or borrower, asking the court to require them to pay all money owed to the lender. A judgment can be obtained in court, requiring the full amount of the note payable to the lender. A judgment can attach all non-exempt assets owned by the borrower, allowing the lender to take those assets to satisfy the amount of the judgment. Exempt assets are those necessary for livelihood and are specified by state or federal law.

Many states will not allow such a suit. In many states, if a suit on the note is filed, a foreclosure on the Deed of Trust or Mortgage is barred. Other states will require a foreclosure process first, followed by a suit on the note. You should note that these types of suits are not the norm, as a foreclosure on a secured property is the primary means of satisfying the note outstanding.

Judicial foreclosure

An in-court foreclosure is called a judicial foreclosure, a lawsuit with specific parameters. Again the foreclosure laws will vary a great deal from state to state. A judicial foreclosure allows the lender to institute a lawsuit calling the entire note due and requesting a court ordered sale of the property to satisfy the note

When a judicial foreclosure permits the calling of the note due, taking the property may not be enough to satisfy your debt. The lender will gain a deficiency judgment against the borrower. A deficiency judgment demands that, if the lender does not receive all amounts due them from foreclosure sale of the property, the remaining balance of the debt should be paid by the borrower. The rules and requirements of both property types and borrower actions will vary greatly by state, so competent legal counsel is absolutely necessary.

Non judicial foreclosure

With an out of court process, or non-judicial foreclosure, the process is usually handled by an attorney or a foreclosure professional. In some states, the process allows the lender to re-take the property without getting any other compensation from the borrower. Other states will allow a deficiency judgment after the foreclosure process is completed. This type of foreclosure occurs when borrower has no other obvious assets or ability to pay, when the property is worth more than the loan outstanding, or when it appears that this is the only legal option.

In general the borrower has rights to bring payments up to date, in which case, the note may not have to be paid off. In many states the borrower may also have redemptive rights after the process has occurred.

Deed in lieu of foreclosure

Another way of dealing with a mortgage default that will require the cooperation of both the lender and the borrower is to transfer the property by means of a deed in lieu of foreclosure. Fast and inexpensive (legal fees), both parties agree to transfer the property to lender, avoiding the time and expense of foreclosure. Most importantly, the borrower may avoid the possibility of the lender pursuing them for a deficiency judgment.

Bankruptcy

The possibility always exists that declaring bankruptcy may be the last form of refuge in a loan default. Lenders will want to avoid such a situation as bankruptcy creates numerous delays at a considerable cost. Competent legal counsel should be sought in determining if this is the right avenue for you

With all of the alternatives discussed above, the specific rules applicable to your state will determine whether you would face the risk of having a deficiency judgment ordered on behalf of the lender.