California Deficiency Judgment? Take Heart!

One of the less discussed negatives (after losing or short selling your home)is what's called a deficiency judgment. Simply described, this is when a homeowner sells his home short or loses it to foreclosure and the bank involved still ends up getting less than the amount of the outstanding mortgage. They go to court and get a judgment against the former owner for the difference--a deficiency judgment--which means that the owner hasn't suffered enough yet, but must also pay what's left that wasn't recovered in the sale or foreclosure of the home. California has had for years a law that partly shields the homeowner from this ignominious fate. It's called the One Action Rule, and basically says that in many cases (check your atty to see if you benefit), the lender gets "one bite of the apple" on a foreclosure--if the house doesn't cover the debt, the bank's stuck. It doesn't get to come back to you and hold out its hand for the difference. Well, this summer, California broadened this consumer protection. Previously, the courts in the Golden State ruled that although the rule didn't allow the lender to pursue the shortage, it didn't extinguish the debt. Bootstrapping onto that many lenders have handed out the deficiencies to credit collectors, or filed suit in court top get the amount they were left short of. Under new legislation, this is now banned. Many lenders and collectors have so far ignored the change in law, but all that does is potentially set up a cause of action for the former homeowner being pestered for the deficiency to sue whoever's chasing him/her for the harassment of trying to collect on the debt. SO, if you fit the situation of prior foreclosure with a deficiency in what the lender was able to collect and are being hounded, call your attorney. You may come up with some unexpected cash to soothe your aggravation. As always, good luck.