A deficiency judgment occurs when a lender forecloses upon a property and sells it a public auction for an amount less than what is owed on the mortgage. This is a tool for the lender to recover what is still owed on the mortgage. Some homeowners are shocked to find out that even after losing their home, the lender can come after them for any monies not receoverd through the foreclosure process. See this article from the Washington Post here.
There are several ways you can protect yourself against deficiency judments. One is through negotiations with the lender prior to the foreclosure sale. For example, a homeowner can deal with the potential for a deficiency during a short sale or deed in lieu negotiation. Will it work in every instance, no, but it is worth a shot.
Secondly, filing for bankruptcy protection can wipe away the deficiency before your wages are garnished or bank account is frozen. Bankruptcy law allows eligible homeowners to discharge debts such as mortgages, car loans, medical bills and credit card bills. Most homeowners will have the choice of either a chapter 7 or a chapter 13. A chapter 13 is a reorganization of your affairs to pay off your debt. On the other hand, a chapter 7 can thought of as a liquidation where you can get rid of your debt without making payments.
Do not be caught by surprise. Talk to a knowledgeable realtor and/or a baltimore bankruptcy attorney about your options. Feel free to contact me with your questions.
Posted by: Joseph K. Githuku
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Disclaimer: This article is provided for informational purposes only and should not be construed in any way as legal advice. This article does not create an attorney-client relationship.