In practice since 1981, John Anastasio is an attorney at the Law Offices Of John Anastasio in Stuart, Florida. He’s an expert in the fields of foreclosure defense and bankruptcy law. Here, he explains the basics of a deficiency judgment.
Most people assume that if they walk away from their home in a foreclosure case, the situation will be over and they can go on with their lives. Unfortunately, this is far from the case in many situations. Thanks to something called a deficiency judgment, homeowners could still owe thousands of dollars on their property even after it has been sold at auction.
If a lender is out a certain amount of money even after your home or property has been sold at auction, rarely are they going to just roll over and forget that. What they will often do instead is file for a deficiency judgment against the homeowner in question.
Let’s assume you owe $400,000 on a home before it goes into foreclosure. The bank will put the home up for auction, and it could sell for $100,000. So the difference between that the amount you would owe at minimum is $300,000. Banks are looking to recuperate that money, so they will get what is called a deficiency judgment asking a judge to award the full amount between the deficiency and what is owed. Not only that, but oftentimes lenders will also file suit and chase homeowners to recover attorneys fees, mortgage interest, late charges, and any other additional costs.
The only way to get rid of this judgment—in the absence of battling it out with a foreclosure defense lawsuit—is to file for bankruptcy. Obviously, making the decision to file for bankruptcy is not easy. But otherwise, that deficiency judgment in a foreclosure case will follow you for years. During that time, it can be nearly impossible to buy another home or sometimes even to find a property to rent.
Foreclosure is bad enough. But on top of losing your home and your investment, foreclosure will cause you to lose your credit score, too. Frankly, foreclosure often looks worse on your credit report than a bankruptcy. And if you have a deficiency judgment, you can be sure it is going to be nearly impossible to find a bank willing to loan you money when you already have that outstanding debt looming overhead.
This is why I discourage clients from simply walking away from their homes on a moment’s notice and hoping for the best. By getting together with an experienced attorney who specializes in the area of foreclosure law, you can work together to build a defense in your case and negotiate a settlement with the bank or mortgage lender. Even if the result of your foreclosure case isn’t that you get to keep your home, it is certainly better than ending up with a massive debt load in the form of a deficiency judgment, as well.
