Can you negotiate a deficiency judgement

A nonjudicial foreclosure process may require as little as a homeowner missing a few months of your mortgage payments and a law firm running three weeks of advertisements of the foreclosure sale in the legal notices of a local newspaper for the mortgage company to begin the foreclosure process. Foreclosure sales are often conducted by auction on the courthouse steps. A court clerk may come out and call for bids. The only bidder may be a representative of the mortgage company.

It's common for people passing by to have no clue what's going on. In some non-judicial foreclosure states, the foreclosure notice is only required to give the date of the sale and say the time of foreclosure is "during the legal hours of sale.

For this reason, few bidders show up. With few bidders, the homes are rarely sold for fair market value, increasing the amount of the deficiency even further. The former homeowners remain responsible for this debt.

After a foreclosure sale, there is a brief redemption period. During the redemption period, if you're able to find enough money to pay off your mortgage balance, you can pay off the balance and your home will be returned to you. These redemption periods vary by state law.

In some states, when a mortgage lender seeks a deficiency judgment, the redemption period restarts. Many states have made deficiency judgments after foreclosure illegal. A low bid accepted at the sale would cause the amount of the deficiency to be much higher. Where the courts apply this rule, the mortgage company will have to show the court that houses of comparable value in that area sold for prices similar to what was accepted at the foreclosure sale.

There are ways to prevent a deficiency balance. You could negotiate with your mortgage company or debt collector before a foreclosure process is complete. It's often the case that the mortgage company will waive a deficiency balance if you agree to the foreclosure. This is called a deed in lieu of foreclosure. This is especially true in judicial foreclosure states.

If the mortgage company waives your deficiency judgment with a deed in lieu of foreclosure, you could suffer serious tax consequences. They will issue a Form for forgiven debt. Hence, you will have to pay taxes on this forgiven amount just as if you had received the money on your paycheck. If you receive such a Form , you should see an accountant. You may be able to reduce the amount included in income to the extent you're insolvent.

See Form for how insolvency is calculated. If you receive a Form for debts forgiven, you can avoid having to include this money in your taxable income by filing for bankruptcy. Mortgage companies use the same collection procedures as any other creditor that gets a judgment against a debtor. If a judgment is obtained against you, a creditor can refer the matter to a debt collector, garnish your paycheck, take money from your bank account, and put liens on everything you own.

A wage garnishment forces your employer to take the money from your paycheck and send it to the creditor. If your employer doesn't comply with the garnishment order, your employer may have to pay the money itself. If the mortgage company uses a bank levy, the bank must take the money out of your account and send it to the creditor. You may be able to get some of this money back by using your state law exemptions. If you ignore this court order, your lender can use the deficiency judgment to place liens on other property that you own, garnish your wages, or freeze your bank accounts.

If you can't afford to pay back the deficiency and you want to avoid having your wages garnished or your accounts frozen, talk to your lender. See if the lender is willing to work out a repayment plan with you or settle for a reduced amount. If it won't budge or negotiations fail for another reason, you might want to consider filing for bankruptcy. If you qualify for Chapter 7 bankruptcy , it could wipe out the deficiency debt, along with many of your other unsecured debts.

With a Chapter 13 bankruptcy , you might have to repay just a portion or none of the deficiency. If you think bankruptcy might be a way out for you, talk to a bankruptcy attorney and do some research on your own.

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The attorney listings on this site are paid attorney advertising. In some states, the information on this website may be considered a lawyer referral service. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. Lawyer Directory. Call us at 1 How Are Deficiency Judgments Collected? Your lender sues you for a deficiency and wins, but you can't afford to pay.

Now what? How Deficiency Judgments are Collected A deficiency lawsuit is like a lawsuit to recover an unsecured debt—such as credit card debt or medical bills —because the deficiency is exactly that, an unsecured debt. Zip Code. This difference between the selling price and the total debt is referred to as deficiency.

The lender may pursue a personal judgment against you to recover the deficiency amount after the short sale. Typically, once a deficiency judgment has been made, the lender may collect the outstanding amount from you by levying your bank account, garnishing your wages, or through any other means permissible by law. If your lender is seeking a deficiency judgment, there are several ways you can avoid paying back the deficiency, such as:.

If your home is on the verge of being foreclosed and you want to negotiate a short sale agreement with your lender, you should hire a foreclosure defense attorney to help you with the process.

The attorney will also assist you with negotiating about a short sale deficiency judgment with your lender.