Deficiency Judgment

What Is A Deficiency Judgment?

Once a deficiency is confirmed after the foreclosure sale of a property, the lender can opt to request that the deficiency amount be reduced to a judgment against the former homeowner.  The judgment is enforceable and collectable just like any other judgment for cash damages. The lender is now known as a judgment creditor. As a judgment creditor, the lender can file a judgment lien against any other property owned by the former homeowner. It can use the same collections methods as other judgment creditors.

The collection process will usually begin with a citation to discover assets. This is a court proceeding where the former homeowner is compelled to appear in court and answer questions under oath about any assets he or she may have. Assets include bank accounts, stock portfolios, personal property and other real estate the individual may own, in addition to other item(s) of value.

The judgment creditor may seize any assets, especially if there is a significant cash holding in the bank, which is known as a non-wage garnishment. The bank will typically freeze the account upon seizure; the money is then released.  This can cause problems if there are automatic payments scheduled or checks are in the process of clearing  Wage garnishment, in which part of the homeowner’s paycheck goes toward paying off the judgment, is also a possibility, although garnishment is not an effective way to pay off a large judgment. Judgments accrue interest at the rate of 9%, which means the garnishment would do little other than cover the interest owed.

How Can I Avoid A Deficiency Judgment?

There are several ways that Maryland homeowners can avoid a deficiency judgment. The Maryland Mortgage Foreclosure Law provides several options. Homeowners can request a deed-in-lieu of foreclosure or a consent foreclosure. Both of these options involve the homeowner returning the property to the lender in exchange for the lender’s promise to waive any potential deficiency.

Another way to avoid a deficiency judgment is to prevent the property from being foreclosed upon to begin with. In Maryland, homeowners have the ability to cure or redeem their mortgages. These methods both require the homeowner to come up with a significant sum of money. In order to cure a mortgage, the homeowner must pay all of his or her missed payments, as well as any late fees and charges assessed against the loan balance. This right must be exercised within 1 business day of the foreclosure sale.  In order to redeem a mortgage, the homeowner must pay the entire loan balance as well as all applicable fees associated with the foreclosure process.

Another option available to homeowners is to seek a loan modification or other kinds of mortgage restructuring. Loan modifications cure the missed payments, and allow the homeowner to continue making mortgage payments. Once a permanent loan modification is approved, the foreclosure lawsuit will be dismissed.

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