There are numerous websites showing the legal and theoretical possibilities of being sued after foreclosure. Many so-called “foreclosure experts” threaten homeowners with the possibility of being sued after foreclosure, and having their wages garnished, cars repossessed, or given enormous tax bills from the IRS. Since so many state foreclosure laws do allow deficiency judgments, there is always the danger of being sued after foreclosure. However, most of the foreclosure advice being given to homeowners is wildly inaccurate. In almost every single case, what usually “actually” happens is…
Nothing.

The bank, after the foreclosure, would have to sue the former foreclosure victims for the deficiency judgment if one even exists. This means the bank would have to hire lawyers, pay attorney fees and court costs, and would simply have a judgment against them. There is no expectation that they would ever be able to collect on that judgment, and banks are aware that homeowners go into foreclosure because they run out of money. So, if they know homeowners have experienced a financial hardship and do not have any money, and the mortgage company has already lost money on the loan due to the foreclosure, there is little reason for them to sue again. They just move on with attempting to sell the property on the open market and recoup some of their losses.

When a homeowner sells the property before the foreclosure and sells it at a lower amount than what is owed on the loan, this is called a short sale, and is one of the most common ways that homeowners can stop foreclosure on their homes. In this case, the homeowners would get a 1099 at the end of the year, since the bank is forgiving the difference in the loan amount. Forgiven debt is counted as income. But this is only a possibility when a homeowner has worked out a short sale with the bank and a buyer, and the home has actually transferred ownership through the short sale.

When the house is sold at sheriff sale for a loss, this is not forgiven debt. It is merely a sale of the house, and homeowners do not get a 1099 if they do not receive any profit from the sheriff sale and if no debt is forgiven. The house is just taken from them to pay the bank and the bank gets the property back because that was pledged as collateral on the original loan. The legal mechanism of foreclosure allows for the sale of the property at a public auction, but has nothing to do with forgiving any portion of the actual debt represented by the foreclosure judgment.

So that is what actually happens in the vast, vast majority of foreclosure situations. Banks rarely pursue deficiency judgments unless they know the homeowners have a lot of cash and other assets that would make it worth suing them. This is not the case in most foreclosures, though. While literally hundreds of online resources and charlatans will threaten homeowners with the possibility of a deficiency judgment and all of its ill effects after foreclosure, the banks themselves are wise enough to recognize that suing their former clients is not in their best interests in all but the most extreme cases. In fact, most lenders would gladly give former foreclosure victims another loan, if they met the qualifications; so there is no reason to turn away future business due to an unfortunate financial hardship that led to the foreclosure.

www.foreclosurefish.com

Homeowners are often worried that the foreclosure process will never end. The bank will sue them, publish their personal financial problems in the newspaper, take their home back, evict them, and then sue them again for any deficiency from auctioning the property. With the anticipation of a deficiency judgment, borrowers may feel like they will never be able to restart their lives and move on after foreclosure.
However, this is most often simply not the case. The potential for a deficiency judgment, while it exists, can be microscopically small. For a variety of reasons, banks do not pursue homeowners after foreclosure, even if there is a deficiency. As well, there are numerous state and local statutes and court decisions that place limits on how much money a bank can even obtain from this type of lawsuit.

First of all, many lenders decide not to sue for a deficiency judgment because they know that homeowners are unlikely to have any other assets with which to pay the debt. Most borrowers default on their home due to financial hardships such as a job loss or major medical expense. It is probably safe to assume that families in this position do not have the income or assets to pay a judgment for tens of thousands of dollars.

In many cases, the bank, in order to obtain such a judgment, will have to spend several hundred or thousand dollars out of its own pocket. Court fees must be paid if another lawsuit is to be brought into court, and attorney costs will be paid out of pocket by the bank to proceed with the deficiency lawsuit. After losing so much money from the foreclosure and auction of the home, banks most often cut their losses instead of look for a deficiency.

State statutes regarding deficiency judgments also come into play and can dramatically affect how much the bank is able to sue for or recover from the former homeowners. However, borrowers should also be aware that most anti-deficiency judgment statutes apply only to purchase-money mortgages, and second mortgages or refinances may not be affected by these particular laws.

In fact, some states have simply banned deficiency judgments against borrowers when the foreclosure was done nonjudicially through a power of sale clause in a deed of trust. Borrowers in these states can be completely safe from being sued after foreclosure. Although the nonjudicial process affords the fewest legal protections during the foreclosure, it may offer the best chance of avoiding being sued again after the auction.

Other states place restrictions on how much a lender can recover from a deficiency by limiting the amount of the judgment. This is done by giving borrowers a credit for the “fair value” of the property. The fair value is determined by figuring out what the property is actually worth, and this will most often be defined by the statute itself. It may not mean the sales price at auction or the market value of the home, so it is important to read to the state law on the issue.

Another restriction that has been placed on banks seeking deficiency judgments is strict time frames in which the judgment can be initiated. If banks were able to wait years before suing the former owners, it may be nearly impossible for the family to get on with its financial life. Instead of having borrowers live with the threat of a lawsuit, states have decided that deficiency judgment suits must be pursued almost immediately after foreclosure, or the opportunity to do so is eliminated.

Lenders may also have procedural restrictions placed on their ability to sue borrowers after foreclosure. In some cases, the bank may have to provide additional notices to the owners informing them of the intent to seek a deficiency judgment. As well, the bank may be required to seek a determination of deficiency in the original lawsuit, rather than bring a lawsuit seeking the judgment after the sheriff sale has been conducted.

Many of these restrictions may come into play at the same time, while banks will run into one after another in other foreclosures. These limitations and additional requirements, along with the likeliness of never being able to collect on the judgment, ensure that the majority of homeowners are safe from being sued for a deficiency. While it is not impossible to be sued by the bank, the legal hurdles to overcome in pursuing this lawsuit make it somewhat rare in the world of foreclosures.

www.foreclosurefish.com

Homeowners are often worried about further collection attempts after a foreclosure has been completed. After losing their homes, they worry about seeing their car repossessed, bank accounts levied, or wages garnished. But in most cases, there is little chance of a deficiency judgment or future collection attempts due to the numerous obstacles in the path of the bank.
This is the factor that most borrowers do not consider when worrying about the possibility of a deficiency judgment. It is often not in the bank’s interest to spend its time and resources pursuing previous foreclosure victims who found it difficult to pay back their original loans. It costs money and takes time to hire attorneys and proceed with another lawsuit in the court system, and there is little incentive to do so against defendants who proved they do not have the financial ability to pay a judgment.

There are at least five considerations that banks have to take into account before they proceed with suing and attempting to collect on a deficiency judgment. These considerations are as follows:

Does the law allow a deficiency judgment?
Was there a deficiency at the sheriff sale?
What is the fair market value of the home?
Is there a reason to expect the borrowers can pay?
Is the judgment likely to be discharged?
These five issues are discussed in more depth in the paragraphs following.

The first consideration homeowners have to take into account is, does their state allow deficiency judgments after foreclosure? They should immediately look up their state foreclosure laws to find out if this is even a possibility, let alone probably. If they are not allowed, then there is no danger of garnishment. If yes, other factors will have to be met before collection efforts can resume.

Second, if the state allows a deficiency judgment, was there actually a deficiency at the sheriff sale? A deficiency is when the house sells for less than what the borrowers owe on it. If they owe $140,000 and the property is auctioned for $130,000, there is a $10,000 deficiency. Unfortunately, due to rapidly declining home values, many foreclosure auctions end with a deficiency.

Third, what is the fair market value of the home? Many courts will allow a deficiency judgment only for up to the actual value of the house. Using the example in the previous paragraph, if the house auctioned for $130,000 and the homeowners owed $140,000, but the fair market value is $135,000, courts may limit the deficiency to a maximum of $5,000. That is the fair market value ($135k) minus the sales price at auction ($130k).

Fourth, if the state allows a deficiency and there is one that is above the fair market value of the home, what gives the lender the incentive to go after the judgment? Many lenders will not bother with a deficiency judgment because they know that homeowners in foreclosure are strapped for cash. It costs more in attorney fees and court costs than the lender will ever be able to recover from most borrowers, so what is their incentive to sue for a deficiency?

The final consideration when examining the possibility of wage garnishment for a debt after foreclosure is that deficiency judgments are dischargeable in bankruptcy. If the bank gets a judgment against borrowers and tries to garnish wages, the former owners can file a Chapter 7 and have it eliminated, if they meet the other requirements for a Chapter 7 bankruptcy. So even in the worst case scenario, homeowners might be able to avoid wage garnishment.

Thus, unless many of these considerations work out in favor of the bank, there is little chance of a deficiency judgment. This does not mean that there are no such judgments, as some states allow the request for a deficiency to be included in the original lawsuit. However, it does mean that many lenders have decided not to pursue homeowners after the foreclosure is over and the home sold, regardless of whether the bank was completely paid back by the auction or not.

www.foreclosurefish.com

We all talk about what if’s. One big “what if” that many homeowners have today has to do with mortgages.

About one-third of South Florida mortgages are underwater, meaning the homeowners owe more than the home is worth at today’s depressed prices, according to First American CoreLogic. Some homeowners are certainly wondering why they’re sending in the payment on, say, a $300,000 mortgage, when the house today would sell for only $210,000.

Your options: Keep paying or try to change your loan’s terms.

But some people wonder, what if I just stop paying the mortgage? It may be a tempting idea, but it quickly leads to trouble.

Here’s what could happen if you don’t pay the mortgage.

Report to the credit bureau

If your payment does not arrive, your lender or servicer will report this late payment to the credit bureau by the first day of the next month. This can happen in as little as two weeks from due date and put a negative mark on your credit report. Your credit score drops.

The late payment report whacks your credit rating. Your credit score starts to drop, by up to 200 points, if this is your only late or missed payment.

Cards are closed, rates rise

In the next 30 days, you can expect your other creditors to take note of the late payment and to take action. They can raise your interest rates, shut off your credit card entirely, or lower your credit limit. You also could face other changes in your financial life, because auto insurance, student loans and other forms of credit are pegged to your credit score.

Tightening of credit lowers your score

Credit scores feed on themselves. If your credit card limits are lowered and you are carrying a balance, you are then using more of your available credit, something known as your utilization rate. When that goes up, it lowers your score some more.

The negative mark stays on your credit report for seven years. But the impact on your credit score lessens over time. The biggest impact is for the first two years.

Lender response

The phone will start ringing. Your lender will try to contact you, try to persuade you to go into a loan modification of some kind.

But after 90 days, you cannot just start making payments again. The lender may actually send your payment back, if you send it this late and have not been in contact.

What happens next

After four months of not paying your mortgage, you will likely be served with a foreclosure notice.

If you don’t respond within 20 days, then the lender, in the following 60 days, will ask a court to issue a judgment against you.

A county sale will be arranged 50 to 120 days after the judgment. Next, 120 days after the sale, the sheriff will be at the door. Ten days after that, you’ll be thrown out of your home.

(Tip: This schedule is a general one. Courts are facing a backlog of foreclosure cases and could take longer to go through these steps. If you hire a lawyer and fight the foreclosure, you may be able to delay the sale for many months or avoid it altogether.)

WASHINGTON – Oct. 29, 2009 – Senators reached a compromise to extend the $8,000 tax credit for first-time home buyers, a boost the housing industry expects will help it pull out of its two-year-old downturn.

Lawmakers in Washington also added a $6,500 tax credit for other primary-home purchasers and raised the qualifying income limits to $125,000 for single taxpayers and $225,000 for joint taxpayers, housing-industry sources said.

Under the Senate compromise, buyers must have sales agreements in hand by April 30, but they will have until June 30 to go to settlement, the sources said. The measure still faces votes in the full Senate and the House.

The current tax credit did little for the new-home market in September, the Commerce Department reported – news that took many industry analysts by surprise. Sales fell 3.6 percent from August and 7.8 percent from September 2008.

Industry observers had expected a fifth consecutive monthly increase in new-home sales, believing that the tax incentive for qualified first-time buyers – credited with 357,000 sales of previously owned homes so far this year – would do the trick.

Instead, sales of typically more expensive newly built houses slipped.

“The decline in new-home sales seems to us to be more a function of the attractive pricing available on resales in the current environment than a reflection of weakening demand,” said Michael Feder, president of Radar Logic Inc., of New York, which tracks the market.

“Big deal,” said Joel L. Naroff, of Naroff Economic Advisors, of Holland, Bucks County. “Since hitting rock bottom in March, demand is up 20 percent.”

For Naroff, the robust rise in existing-home purchases – 9.2 percent year over year in September – indicated that the housing market was not faltering.

“Maybe the issue is supply, which fell to its lowest level in 27 years,” he said. “Builders, at least those left standing, have been making sure they don’t have any houses sitting around, and they have been very successful in controlling inventories.”

IHS Global Insight Inc. economist Patrick Newport echoed that, noting new-home inventories “sank for the 29th straight month to their lowest level since November 1982.”

Naroff maintained housing had recovered enough to stand without the tax credit. But Newport said he believed that if the credit were not extended and expanded, housing demand would take a hit, and home sales would drop.

Until the Senate compromise today, the extension of the credit seemed mired in what National Association of Home Builders vice president Jerry Howard called “a game of partisan chicken.”

Howard’s take on the lower September numbers: It was too late to sign a contract on a house that would be completed by the current Nov. 30 deadline, and many buyers were concerned the credit would not be extended.

The credit has helped, acknowledged Marshal Granor, a principal in Granor Price Homes, of Horsham. But he added, “I’d love for it to go away, for a month.”

“People who believe there is no rush aren’t buying, they are waiting for more bargains from more squeezed sellers,” Granor said.

Still, said Feder of Radar Logic, lower home prices have carried “buyers further into the autumn than we would expect, based on historic patterns.”

Declining inventory means builders will have to ramp up production, Newport said.

As the Senate worked on the compromise, third-quarter data were released showing that the burden of foreclosure filings in the post-bubble market continued to shift from the subprime-ridden “sand” states (California, Nevada, Florida and Arizona) to areas with rising levels of unemployment and adjusting rates on the “exotic” mortgages prevalent in high-cost metropolitan markets.

Yet Las Vegas remained the toxic-loan capital, according to the third-quarter survey by RealtyTrac Inc., of Irvine, Calif. – its rate of foreclosure filings was seven times higher than the national average.

WASHINGTON (AP) – Oct. 27, 2009 – Top Democrats in the Senate are pressing a plan that would extend a popular tax credit for first-time homebuyers but gradually phase it out over the course of next year.

The proposal, by Majority Leader Harry Reid, D-Nev., and Senate Finance Committee Chairman Max Baucus, D-Mont., would extend the $8,000 tax credit – which expires Nov. 30 – through March 31. Its value would drop by $2,000 for each of the subsequent three quarters of 2010.

The plan, which could face a vote in the Senate this week, appears aimed at countering a far more generous $17 billion bipartisan plan that would extend the $8,000 credit through June 30, 2010, boost the income cap for eligibility and open the credit to all buyers, rather than first-timers.

Senators are maneuvering to add the homebuyer tax credit extension to legislation to extend unemployment benefits by up to 20 weeks. That bill faces a key test vote on Tuesday.

Supporters say the tax credit has helped revive the housing market and say that if it’s cut off as scheduled at the end of next month, home sales could drop off.

Reid sought to schedule a vote on the competing measures on Monday but was blocked by top Senate Republican Mitch McConnell of Kentucky, who is demanding votes on unrelated GOP proposals.

One such proposal would require people receiving unemployment insurance to be processed through the E-Verify program to prove legal immigration status and would require all federal contractors to use E-Verify. E-Verify is an Internet-based system that employers use to check on the immigration status of new hires.

The Democratic plan also would extend the ability of money-losing businesses to claim refunds on taxes paid during profitable times up to four years ago. All businesses could take advantage of the credit; when passed in February it was limited to smaller companies with annual revenues of $15 million or less.

The provision is especially popular with homebuilders who made huge profits in the housing boom but are struggling today. Critics say it’s a giveaway to some of the very companies that helped build up the housing bubble years ago.

October 26, 2009—In order to create hundreds of thousands of badly needed jobs and move the economy to higher ground, the National Association of Home Builders (NAHB) called on Congress to extend and expand the $8,000 first-time home buyer tax credit set to expire at the end of next month.

Testifying before the Senate Banking Committee, NAHB Chief Economist David Crowe warned that builders are reporting that business generated by entry-level buyers is already declining because it is now too late to complete a new home sale in time to take advantage of the tax credit.

“Not only will builders soon be losing one of their most effective selling tools when the $8,000 federal housing tax credit expires on Nov. 30, they are also facing significant challenges that threaten to derail the fragile housing recovery before it even has time to take root,” said Crowe. “Strict mortgage underwriting and low appraisals are making it difficult for a willing buyer to complete the sale and terms and credit availability for builder acquisition, development and construction (AD&C) loans are extremely tight. The bottom line is that housing and the economy are at a critical crossroads.”

To spur job growth, help reduce foreclosures and excess housing inventories and stabilize home values, NAHB is calling on Congress to extend the home buyer tax credit for an additional year through Nov. 30, 2010 and make it available to all purchasers of a principal residence. “We estimate this would increase home purchases by 383,000 and create nearly 350,000 jobs in the coming year,” said Crowe, adding that it would also generate $16.1 billion in wages and salaries; $12.1 billion in business income and tax income of $11.6 billion for federal, state and local governments.

Congress can also help put the housing market back to work by encouraging regulators and the banking industry to restore lending for viable home building projects and to take meaningful steps to avoid unnecessary foreclosures on outstanding AD&C loans by accommodating loan modifications and workouts.

“This would provide relief for a major sector of the economy that has suffered because of regulatory excess and the inability of banks to provide the necessary funding and flexibility that would otherwise keep loans performing as scheduled,” said Crowe.

To further contribute to a housing and economic recovery, Crowe urged Congress to call on the Federal Housing Administration, Fannie Mae and Freddie Mac to adopt new regulatory guidelines for conducting appraisals under distressed market conditions.

Citing a recent survey by NAHB that found that 25% of builders are losing sales because their appraisals are coming in below the contract price, Crowe said: “You just cannot compare a well-constructed new home with a foreclosed home that has been vacant for months and was probably neglected for a long time before it was vacated. They simply are not comparable and the standards need to be adjusted to reflect that reality.”

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The General Accountability Office has reportedly frozen more than 110,000 first-time home buyer tax credit refunds pending civil or criminal examinations due to allegations of fraud. The main concerns are whether or not a home purchase actually took place and if the home buyer claiming the credit is technically a first-time home buyer as defined by the IRS.

In another article about the possible first-time home buyer tax credit fraud, reporter Dawn Kopecki reports that children as young as four years old have improperly received the first-time home buyer tax credit. And, according to the Treasury’s J. Russel George, who testified before Congress recently: “They [IRS] also found that 580 taxpayers under 18 years old and therefore ineligible to buy a home claimed almost $4 million in tax credits.”

The first-time home buyer tax credit ends Nov. 30, 2009. If you do not have a property under contract by the end of October 2009 it will almost be impossible to complete the sale unless you are paying cash!