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How often do banks come after you for a deficiency judgement after foreclosure

Discussion in 'Foreclosures' started by krauttastic, Oct 1, 2010.

  1. krauttastic

    krauttastic LoanSafe Member

    what i am trying to ask is, do banks normally come after you personally for the deficiency balance or do they normally just write it off with the government. Meaning i would just get a 1099 from the government at tax time.

    my home is severely underwater owe 217,000 and it is worth about 180,000 in MD

    I am seriously concerned about what happens to the difference after they sell it. I read that they normally dont come after the home owner because they know they will never be able to collect. Insted they file for a loss with the gov't. I hope they choose the latter because the i could take advantage of the Mortgage Debt Forgiveness Act .

    Anyone have any personal experiences or can direct me to a thread that helps explain this.
  2. airahcaz

    airahcaz LoanSafe Member

    better yet, or additionally, has anyone received a deficiency judgment and can advise as to what happened thereafter?
  3. Sanity

    Sanity LoanSafe Member

    I am curious as well. Has anyone experienced any sort of collection activity related to a deficiency judegement after a foreclosure. Please share your expereince! Not knowing what to expect is extremely STRESSFUL!!
  4. krauttastic

    krauttastic LoanSafe Member

    any feedback at all? we are currently in default, but still waiting to hear an answer on a loan Mod. I have a feeling more and more everyday that we will go through foreclosure, as the loan mod, even if we are accepted, will most likely not bring our payment to what it needs to be.

    looks like we will hopefully be using the Mortgage Debt Forgiveness Act if they don't come after us for the balance remaining after they sell the house at auction.

    home bought in 08 for 220,000 and is now worth 157,000.....so i figure they would be lucky to get 100,000 at an auction. They wouldn't think they could collect 100,000+ from me would they?
  5. shobam

    shobam LoanSafe Member

    I did a short sale in sept 2010. With that sale came a charge off of the 2nd, a HELOC. I received collection calls but no court action as of yet if thats what your asking. There are those on this blog who have been saying that "They" have not heard of - or have seen any evidence where by "sold out juniors" have been taking people to court any where in the USA. Now I think what they mean is banks who are / were holding a 2nd lien. To your point, "deficiency judgment" being sought from a bank who holds the mortgage taking you to court after a foreclosure or short sale and seeking the difference. I have not read that here either nor have i heard of it nor have I read it in any local papers. From what I have seen as was with my case,the 1st lien holder sent me a 1099 and relieved me of the difference.
  6. AZhelpneeded

    AZhelpneeded LoanSafe Member

    I expect our bank to come after us. Our attorney says it is the norm with our bank and recourse loans. I have yet to see a post on here about someone actually getting a judgement though....I am just as curious as you all are. I wish someone would come forward with their personal experience.
  7. shobam

    shobam LoanSafe Member

    Me Too! I have researched it up here in Massachusetts but have found no real evidence of a bank seeking a judgment and the trying to enforce it. Be careful what you believe from an Attorney, just view their sights and you'll see. He maybe "suggesting" what a bank will do in an effort to lightly scare you into hiring him. I have had that happen in several other situations over the years. I have gone out and hired a Lawyer because I was frighted about a possible out come,m an out come that he him self suggested only to have that feared out come never even come close to happening. Lawyers think on themselves first, no matter how well that your think you know them .Keep that in mind
  8. AZhelpneeded

    AZhelpneeded LoanSafe Member

    Shobam: I wish that was the case with our attorney. I would love for him to be wrong, however I believe he is correct. We, along with many others on here have sought his advice and we all seem to have the same opinion of him...very stand up guy with a great deal of experience. In fact we are in the process of negociations with the bank and his opinion is that we should NOT hire him, we will do better trying to negociate for ourselves because of the perception of people who hire attorneys have $$$. He has cited numerous cases he has where our bank has sought a judgement. He's been able to settle some and others the bank refuses to settle (or the person can't come up with the $$$ the bank wants to settle) and there is a judgement. So long story short, we have not hired him, nor would we until there is a lawsuit and I hope there is not, but I'm not holdiong my breath.

    I'm just so surprised no one on here has come forward with a judgement against them. I hope I'm not the first one!
  9. shobam

    shobam LoanSafe Member

    so you already have been to court and have a judgment against you, is that what you are saying? If so, you are the first person to come out and admitt it or have it happen to them. If you don't mind me asking, who is your bank and did you answer the summons to court. That would be helpful information to other here.

  10. AZhelpneeded

    AZhelpneeded LoanSafe Member

    Shobam: No we do not have a judgement yet or a summons. We are in negociations with the bank (M&I) to come to a settlement agreement on our deficiency. It's not looking good at this point, so if we can not come to an agreement we expect a lawsuit. I hope I'm wrong. Only time will tell.
  11. shobam

    shobam LoanSafe Member

    I don't know what state that your in but up here in Massachusetts it "behooves" the lender to settle out of court. They can take you to court and get a judgment. Enforcing that judgment is quite another thing. There are laws in place at all levels that spells out what and how much a bank can go after and were they can go after it. For example, they can only garnish between 10% 25% of you wages after and only after a ton of other deductions are made. Unless your making a ton of money any lender will be unlikely to get anything more and a few bucks a week. And that's if you don't answer the summons. If you answer the summons you can get postponements and a host of other delays forcing the collections people to do more. If the people at M&I are reaching for something that you simply don't have and you know that you don't have then whats taking you to court going to do. We don't know how much of a deficiency that your talking about here so I don't know what kind of a settlemnt that your looking for. Moreover, if you just lost your home due to foreclosure or short sale meaning you couldn't afford the payments, then what the hell does M&I think that they're going to get now. If you did a strategic default and you have a ton of other assets that might be different. If they say that you owe them say; 100k and want it all right now and nothing less will please them then you might as well go to court. Again, I/we have not heard of anyone nor have I been able to find anyone who has been taken to court, had a judgment against them handed down and then had the lender go out and have it enforced.

    So please let us know were you are as this moves forward, in the meen time try and work out a settlement.
  12. airahcaz

    airahcaz LoanSafe Member

    need a little clarity if you don't mind -

    1. Did you short or foreclose?
    2. In either case, what did you sign in terms of any shortfall?
    3. Was this in relation to your first mortgage or your second mortgage and how was each handled?
  13. krauttastic

    krauttastic LoanSafe Member

    Thanks for this. So if they aren't coming after me for the deficiency after forclosure, then do they just write it off with the IRS for a loss and collect what they can. The way I understand it is they will do this but then it will come back to me as earned income. I think I would even get a 1099 stating this was earned income. But at that point I could use the Debt Forgiveness Act tax break and owe the IRS nothing.

    I hope you can answer, or if anyone can please set me straight.

    We are so very close to getting out of this BAD mortgage and moving on with our lives. i'm just worried this will stick with us for so long that we will never be able to get back on our feet again. Thanks.

    BTW, I am the OP of this thread so if you want to know some background read the OP at the top of this thread!
  14. TomEason

    TomEason LoanSafe Guide Staff Member

    You lender's internal accounting and their accounting with the IRS has no bearing whatsoever on you. If you need clarification on your tax exposure, why not consult with your tax person or other professional? Or you might get a copy of the current year JK Lasser "Your Income Tax." It's cheap and a much better reference than the IRS pubs. I get a copy every year to use when filing my taxes.

    You can also read this comprehensive article written by a CPA who specializes in RE tax. www.realestateinvestingtax.com/shortsale.shtml
  15. krauttastic

    krauttastic LoanSafe Member

    not really what im saying. when they write off my deficiency balance is what im asking about, which in a recourse state (MD) I would be liable for. I owe 220,000 if they sell my home at foreclosure auction for say, 120,000 there is a deficiency of 100,000. They would either come after me for that balance which most people think is highly unlikely for reasons explained above. Or they would write off the deficiency (100,000) to the Fed Gv't as a loss at tax time. This would mean I would get a 1099 for the earned income (100,000)....correct?

    i find it hard to believe nobody can answer this simple question.....
  16. shobam

    shobam LoanSafe Member

    I can answer that question. Yes, if you are in a recourse state then you can be held liable for the deficiency after the foreclosure. If they send you a 1099 for that deficiency amount then they cannot come after you for that amount some time latter. By getting that 1099 the lender is releasing you of any further collections. You would be able to write it off via the "Debt Relief Act of 2007" Now. there was much debate on this blog over weither or not a lender can send you a 1099 and then some time latter come after you for that same money. Arguments were made that a 1099 is an IRS issue and there are no real laws governing such things and that 1099s were also just internal accounting maneuvers and such BS. I asked my accountant this very question and he vehemently and adamantly insisted that "They" being any lender cannot do both, if they 1099 you then they cannot decide a year later to start collections on you.

    The country side it littered with foreclosed homes, homes upside down, short sales and abandonments, half built places and unsold new builts. Your lender is not going to single you out the day after that foreclosure and come after you for the shorts. It will take months for them to foreclose and months more to set up and auction. Even so there is no guarantee that someone will pick it up at auction. Then what? If you want to get out from under that house read some of the suggestions that others have done, like moving out now and setting up a lease to a renter and sit back and enjoy the revenue stream for as long as you can.
  17. krauttastic

    krauttastic LoanSafe Member

    Thankyou thankyou thankyou! that is what i thought but i just wanted to hear from someone with experience.

    it is true that they are overwhelmed with "foreclosed homes, homes upside down, short sales and abandonments...". there is not enough time in the world for them to pursue every deficiency, even if its only allowed in recourse states. it makes way more sense for them to just do the 1099 and collect 40% or whatever it is they get back for the loss from the Fed.

    we have not paid a payment in 9 months. We have applied for an in house mod and are STILL WAITING to hear back with an answer. Basically we owe 220,000 and our house now shows an estimate of 157,000 on zillow.com . I can't see that value coming up, or us paying down to the market value for at least 10-15 years. This was only a starter home 5-7 years we figured we would sell and make a small profit. We've been in the house only 3 years and have constantly fallen behind on payments, wife was laid off for a year, and I think we way overspend out of our means. I feel ashamed and embarrassed but there is no other way to turn than just walking. It's been 9 months now without a payment, we got an accelleration notice about a month ago...so hopefully they will just forclose soon. Even if the mod is approved i dont think it would be very smart to remortgage this house for that price again, possibly for 40 years too, especially since we were struggling with the 1600 month payment. I cant see them knocking more than like 100-200 dollars off a month if approved. we can only afford somewhere in the 1000-1100 dollar range on our salaries. luckily my inlaws have a spare house that is empty and we are welcome to move there for minimal rent.

    i dont want to miss the Dec 31st, 2012 deadline for the Debt Relief Act. I cant wait around any longer so do I just call them and tell them to cancel the Mod application and leave or what is the next step do you think?

    anyway i am just venting and looking for any advice and i appreciate your time and effort. its really nice to have this board for such things.
  18. rn583764

    rn583764 LoanSafe Member

    You could probably claim insolvency to avoid the tax since your house is underwater. Check with your CPA.
  19. TomEason

    TomEason LoanSafe Guide Staff Member

    If, in your opinion, the question is so simple, why would you even be asking it instead of finding the answer for yourself? FYI, there are few, if any, forum members who can claim the expertise and will to advise on an individual's tax position. A professional will want access to your total financial picture, to include copies of your recent tax returns. Most forum members will choose to eschew offering advice in these matters for obvious reasons.
  20. krauttastic

    krauttastic LoanSafe Member

    kudos for the response.

    although... i must admit, you caught me! i was indeed looking for reassurance from another member, even though I already knew the answer to my own question. My bad friend, I was under the impression that we were all here to support one another, and share with each other our personal experiences.

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