For many struggling homeowners, foreclosure can seem like the worst possible scenario. To owe so much money that the bank reclaims your home is a terrifying notion to consider, yet, this is not always the end of the ordeal. Unbeknownst to most homeowners facing foreclosure, it is possible to still owe large sums of money, even after your home has been reclaimed.
Often, a foreclosed home will be sold at auction for only a fraction of what the homeowner owes to the bank. In such situations, the bank may sue the homeowner for the remaining amount, in what is known as a “deficiency judgement.” This can leave such borrowers in states of massive debt, owing hundreds of thousands of dollars on homes they no longer possess.
Deficiency Judgements Become Increasingly Common
Foreclosed homes typically sell for very little, often way below the actual amount owed. This means that most foreclosed homeowners still owe the majority of their mortgage debt, even after losing their homes. This is due to a variety of factors, not the least of which being that today’s foreclosures are being sold in a housing market that has declined significantly in recent years.
At present, 41 states permit lenders to sue borrowers for outstanding mortgage debt after a foreclosure sale. Previously, it was rarely worth the effort and resources required to pursue outstanding debt owned by a foreclosed borrower. However, now it is common for banks to lose $100,000 or more on such sales. Thus, unfortunately, the realities of today’s economy mean that more and more lenders are suing for the remaining amount they are owed.