The foreclosure process is often an emotional and confusing time for families. Unfortunately, for many homeowners the hardships do not end when the foreclosure is over. In the economic recession our nation has experienced over the last few years, many homeowners have mistakenly thought they could just walk away from a home and start over. However, a deficiency judgment can place a financial strain on families for years after a foreclosure. What is a deficiency judgment and how can you avoid it?
What is a Deficiency Judgment?
A deficiency refers to the amount still owed once a house has been sold as a foreclosure. For example, if you owe $200,000 on your home and it is sold at foreclosure for $180,000, your deficiency is $20,000. A deficiency judgment refers to an order by a court mandating your responsibility for the remaining debt. Once a foreclosure is complete, a lender will file a deficiency action asking the court to make a decision regarding the debt collection.
How to Avoid a Deficiency Judgment?
First, the potential for a deficiency judgment is the primary reason any homeowner considering a foreclosure should consult an Ohio foreclosure defense attorney before making any decisions. If a court rules in favor of the lender, the bank could levy your bank accounts and personal property. This domino effect could negatively impact your financial future for years to come.
It’s important to know you have options. Consider the following:
- Negotiate a settlement. It is possible to negotiate the deficiency amount with the lender before or after the foreclosure. It’s important to note that the deficiency amount is limited by the fair market value of a home. During the fall of the housing market, most homes fell in value. This fact can help you negotiate a lower deficiency or completely remove it.
- Try a short sale. A bank will often accept a sale that is less than the balance owed, referred to as a short sale. This option can be a difficult process, but does help avoid deficiency. However, you or an attorney will need to ensure that your documents specifically state you are not responsible for the deficiency.
- Challenge the action. If the lender does file a deficiency action, you can challenge their claimed fair market value. This is also a process that a foreclosure defense attorney can help walk you through.
- File for bankruptcy. Both Chapter 7 and Chapter 13 bankruptcy can remove or reduce deficiency judgments.
If you are a homeowner facing a deficiency judgment or just considering foreclosure, it’s important to look at all your options. The earlier you get informed, the better. Contact us for a personal evaluation of your foreclosure situation.