Walking away from your mortgage? Beware of deficiency judgments.

[mia]

The condo association where I live is pursuing this option to be reimbursed for unpaid condo fees.

http://www.heraldtribune.com/article/20110618/ARTICLE/3...

...When a lender sells a foreclosed home for less than the mortgage, the difference -- or "deficiency" -- is typically registered in the court proceedings as being owed by the original borrower, but it is seldom paid....

The same thing can happen with unpaid condo or homeowner fees. Either as part of the bank foreclosure or through a separate foreclosure action, the homeowner or condo association can ask the court for a deficiency judgment. In either case, even if these debt instruments gather dust for years, they remain valid and are accruing interest at the rate of 6 percent to 18 percent per year.

...There is a five-year period from the end of a case judgment to establish a deficiency judgment. Then that judgment lasts for 10 years and it can be renewed for another 10 years.

"You can even sue at the end and get more time, so there is all the time in the world to collect on these things," Soto said. "Yet there is this pervasive rumor that you can somehow walk away from your house and never have to worry about it again. And it is simply not true."

[mia]

1. Here's the original article.

http://www.heraldtribune.com/article/20110618/ARTICLE/306189990/2055/NEWS?p=all&tc=pgall&tc=ar

[bemildred]

2. Dang, it can ruin your credit?

:sarcasm:

[mia]

3. ...thought they were done with an "investment property" except for the bad credit rating

For the previous owners, who thought they were done with an "investment property" except for the bad credit rating, the garnishment can come as a rude shock.

Homestead's Mary and Luis Renfigo found out the hard way how heavy a deficiency judgment can be.

Earlier this year, Mary Renfigo got a phone call from the bank where the couple had their checking account, saying it had been legally frozen. A warning letter from the bank a few days earlier went unread.

The couple had $2,300 in the bank, but all of it got swept up in the writ of garnishment. And that did not come close to covering what they now owed. With interest stacking up on the unpaid balance, the debt was $4,300.

[bemildred]

4. If you can pay, it's a problem. If you can't, you can't.

In either case, what matters is the law, not your credit rating.

[mia]

5. I agree. n/t

[sendero]

6. This article..

.... is about half true. Your responsibilities should you walk depend almost entirely on the laws in your state.

Certainly, you should be aware of the possibilities and probably talk to a RE attorney, but this is a scare-you-off piece with exaggerated scenarios.

[mia]

7. List of states allowing deficiency judgements

I agree,"talk to a RE attorney".

http://wiki.answers.com/Q/Which_US_states_allow_deficiency_judgments

Many states allow deficiency judgments in one kind of foreclosure, but not another. Often, a deficiency can be pursued in a judicial foreclosure, but not if a power of sale clause is used to auction a home outside of the court process. Homeowners should look up their own state laws and type of foreclosure being used against them.

The following list should be taken as a guide and not as legal advice or as particularly relevant to one borrower's case.


These states allow deficiency judgments without limits in certain kinds of foreclosure:

•Alabama
•Alaska
•Connecticut
•Delaware
•District of Columbia
•Florida
•Hawaii

•Illinois
•Indiana
•Kentucky
•Louisiana
•Maryland
•Massachusetts

•Missouri
•New Hampshire
•Ohio

•Rhode Island
•Tennessee
•Virginia
•Washington
•Wyoming



These states allow deficiency judgments with certain limits on the amount that can be granted in a judgment:
•Arizona
•Arkansas
•California
•Colorado
•Idaho
•Iowa
•Kansas
•Maine
•Michigan
•Minnesota
•Mississippi
•Nebraska
•Nevada
•New Jersey
•New Mexico
•New York
•North Carolina
•North Dakota
•Oklahoma
•Pennsylvania
•South Carolina
•South Dakota
•Texas
•Utah
•Vermont
•West Virginia
•Wisconsin



Deficiency judgments are not allowed on residential properties in Oregon under judicial foreclosure proceedings, and at all in power of sale foreclosures.

[mia]

8. Kick because it made me think twice. n/t