Posted On: June 28, 2013

Alabama Foreclosure Defense Critical in Light of Renewed Deficiency Judgment Push

Many people believe that the nail in the coffin of the foreclosure process is when they are forced to leave the home upon the bank's seizure and resale of the property.

They are wrong.
In fact, our Birmingham foreclosure defense lawyers know that thousands of people right now have been thunderstruck by legal action brought by banks many months or even years after they believed the foreclosure was behind them.

It's called a deficiency judgment, and we're seeing a tsunami of them in the past few months, as Fannie Mae and Freddie Mac have taken action on a plethora of years-old cases.

The lenders insist this is something they've always done, at least with a percentage of cases, as a means to recoup losses in foreclosures. Obviously since the housing market crash, their losses have been more significant. But let's not forget it was the lenders who were irresponsible in doling out these loans at unrealistic, sky-high rates in the first place. Now, they are seeking to punish those who can least afford it.

The reason we didn't see an influx of these cases in the immediate aftermath of the foreclosure crisis was because lenders were operating on a strategy. The theory is that if you sue someone for a deficiency judgment right after a foreclosure, you aren't likely to get much of a return on that litigation. However, if you wait a couple years - as the statute of limitations in many states allows these firms to do - the odds are better that the borrower's credit will be better, he'll have a job again (maybe even a better one) and he'll be in a position to pay up.

There is some truth to this, but it's also true that a deficiency judgment may impose an impossible financial burden on an individual or family. That's because they can reach upwards of hundreds of thousands of dollars.

It works like this:

Let's say you take out a $450,000 mortgage. However, by the time your home goes into foreclosure, it's only worth about $300,00, and that's all the bank can get for it. That $150,000 difference is the deficiency amount and that's what banks are attempting to recover.

Those who can't afford to pay it are forced to file for bankruptcy. In a Chapter 7 filing, all debts are wiped clean, including deficiency debts. For many borrowers, this is their only viable option.

It's not an especially effective tactic for lenders, as a recent government audit revealed that the recovery rate was only one-fifth of one percent. Still, that appears to be enough to keep them pressing forward with these actions, despite the havoc it wreaks on those who are targeted (about 12 percent of all borrowers).

Lenders say they plan to continue going after "strategic defaulters," or those who didn't have any extenuating circumstances that affected their ability to pay their mortgages. One way they might make this determination is if you were paying other bills, but not your mortgage.

This is yet another reason why you should:
1. Fight to avoid a foreclosure, if possible;
2. Hire an experienced foreclosure defense lawyer who can help to mitigate your responsibility in future deficiency cases.

To speak with an Alabama foreclosure defense attorney, contact Eversole Law at 866-831-5292.

Additional Resources:
Lenders seek court actions against homeowners years after foreclosure, June 15, 2013, By Kimbriell Kelly, The Washington Post

More Blog Entries:
Alabama Seniors Struggle With Growing Debt, June 5, 2013, Birmingham Foreclosure Lawyer Blog