Post Foreclosure Liability – Will Lenders Go After Borrowers For Deficiency?

In today’s economic climate, many homeowners have been faced with the difficulties of having their home foreclosed upon.  At Ernst & Associates, as a debt relief firm, we have come in contact with more and more borrowers who have the unfortunate burden of being placed in this situation.

In general, after your home is foreclosed upon, it is sold at a sheriff’s sale, typically back to the lender, and then placed back on the market for sale to another buyer, often at below market value because the Lender (Bank) is not interested in keeping the property for several months to obtain maximum price.   So for example, if you have a mortgage of $150,000, and your home is sold to another buyer for $100,000, you are liable for the Deficiency of $50,000 to the bank after they sell your foreclosed home.

Some states have enacted what are called anti-deficiency laws which prohibit lenders from going after borrowers for any deficiencies; however, Ohio is not one of them.  Under Ohio law, lenders have two years to legally attempt to collect on any deficiencies, after which they are precluded from collecting.  Thus, it is often beneficial for borrowers to try and be proactive if you know you are unable to keep up with your monthly mortgage payments.  Some options you can explore are short sales and a deed in lieu of foreclosure.  In the former, short sales involve selling your home for less than what you owe and the lender typically agrees to forego any deficiency.  In the latter, deed in lieu involves deeding your home back to the lender so they do not have to go through the legal foreclosure process, and they typically will forego collecting on any deficiency.  In both instances, the details are in the contracts so it is important to have an attorney review the paperwork for you.

Finally, every lender is different.  Some lenders rarely attempt to collect on any deficiency regardless of the circumstances, others lenders do.  If you have gone through a foreclosure, you are generally able to discharge any deficiencies you have in a Chapter 7 bankruptcy.  Furthermore, the automatic stay that is issued in a bankruptcy may allow you to stay in your home for a period of time. If you are faced with real estate debt/deficiency or the possibility of foreclosure, contact our law firm to discuss what options may be available to you.

This Blog is for information purposes only and does not constitute legal advice, nor does it create an attorney client relationship.  Please contact and attorney at Ernst & Associates to discuss the individual facts of your case.