Hello legal mumbo jumbo-ites. I am pleased to inform you that I have emerged from the post Holiday-New Years black hole of administrative quicksand and now stand ready to continue to provide you with the most practical and engaging legal blog available, given the challenging times in which we find ourselves.

That said, our foreclosure series continues and this week I would like to address the looming topic of deficiency judgments.

A close business colleague recently forwarded me a Yahoo article post dated February 3rd, 2010, in which the author addressed the topic of banks pursuing debtors after the short sale or foreclosure has been completed and the debtor had mistakenly assumed that everything was "hunky dory". This unfortunate event is called a deficiency action or when awarded by the Court, a "deficiency judgment".

Whether you are possessed with the courage and motivation to pursue a short sale of your property or have resigned yourself to an impending foreclosure, you need to know about deficiency judgments.

Simply put, a defiency judgment is the difference between what your property ultimately sells for (generally in a short sale or foreclosure sale) and the unsatisfied portion of the loan, although I have also heard it told that it can be based upon the difference between the current market value and the amount collected in the sale.  Either way, we're talking about a stack of cash that most people just do not have handy at the moment. 

On the positive and comforting side, deficiency judgments have not historically been pursued by most lenders unless there is a strong reason (i.e. deep pockets) to do so.  Less comforting is the fact that in order to mitigate their losses, lenders may, when the dust begins to settle, attempt to pursue these types of judgments more vigorously.  Only time will tell. 

All of the above is not to say that a short sale or deed in lieu is not a viable option.  In fact, there are many advantageous to being proactive and working with your lender to pursue a solution.  All of these issues are case specific and, so goes the shameless plug for this week, an experienced attorney may be able to assist you in negotiating a settlement or waiver of the deficiency, depending upon the facts or the case and perhaps the fair or foul mood of the lender on a given day.

In many cases a bank may ultimately give the debtor a 1099 as opposed to pursuing a deficiency judgment as this option allows them to write off the loss.  I will address 1099's and the issues relating thereto in next week's post. 

As always, I hope this was helpful.  Have a great week.

 

SJG