Deficiency Judgments

One thing I haven't written about previously is deficiency judgments. These are the amounts that the foreclosing or short sale agreeing bank is short after the transaction on the home. For example, let's say your mortgage balance is $100,000 when the bank forecloses. Yet all they are able to get from sale of the home is $85,000. That leaves a deficiency of $15,000. So the bank sues you to get that amount, the deficiency, back. A similar situation occurs when a bank agrees to allow you to complete a short sale. Let's say you are able top conclude a sale of your home for $125,000. But the amount still owing on your mortgage is $137,500. That means the bank comes up short in an amount equal to the difference between what the home sold for and the amount that you still owed on the mortgage--$12,500. So, once again, the bank attempts top get that back as well by filing suit against you for the $12,500--the deficiency.
Until now, as far as I am aware, no state had ever made the filing of such an action by a lender illegal. The only existing limit on filing such a suit was the individual state's statute of limitations on how long after the transfer/foreclosure of the home the lender could file the action. Now, in the Congress, New York's Ed Towns has introduced a bill limiting the filing of such suits to 12 months after the foreclosure (shorts not included), except in cases where a given state's law is a shorter period of time. Presently, state limits vary from six months to six years.
Called the Fairness In Foreclosure Act, it would also restrict deficiency judgments filed against all low income families. It would also prohibit a lender reporting the deficiency to credit bureaus as a bad debt, a practice that is commonly done today by lenders.
While this is at this point just a bill in the House of Representatives, and, if passed there, will also have to pass the Senate and then be signed into law by President Obama, it is a definite starting point. For details of the proposed legislation, contact either Rep. Towns or your own representative. For reference, the bill is H.R. 3566.
Let's keep our collective fingers crossed.