The Truth About Deficiency Judgments


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Don't be sure that your Realtor or lawyer understand deficiency judgments. Learn the truth about deficiency judgments.

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The Truth About Deficiency Judgments

  1. 1. The Truth About Deficiency Judgments    written by Barry Johnson Real Estate Radio USA January 20, 2010 Click Here For More Information On Deficiency Judgments  ‐ 1‐  © 2010 Real Estate Radio USA
  2. 2. The Truth About Deficiency Judgments    Legal Notice COPYRIGHT: Copyright 2010 Real Estate Radio USA., all rights reserved. LIMITS OF LIABILITY / DISCLAIMER OF WARRANTY: This report is NOT legal or accounting advice. You need to do your own due-diligence to determine if the content of this report is right for YOUR business. Please seek out competent legal counsel if you have any concerns or questions. The information contained herein is based upon the authors experience. Our eBooks are designed to provide information about the subject matter covered. They are distributed, sold, made available for free download and marketed with the understanding that the authors and the publisher are not engaged in rendering legal, accounting, or other professional services. If legal advice or other professional assistance is required, the services of a competent professional person should be sought. Every effort has been made to make our eBooks as complete and accurate as possible. However, there may be mistakes both typographical and in content. Therefore, the texts should be used only as general guides and not as the ultimate sources of the subject matters covered. The authors and the publisher shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused or alleged to be caused directly or indirectly by the information covered in the eBooks. No earnings claims are being made anywhere in this report or in the marketing of this report. The publisher of this report is not liable for any damages or losses associated with the content in this report. (I think we’ve now satisfied the suits!) Click Here For More Information On Deficiency Judgments  ‐ 2‐  © 2010 Real Estate Radio USA
  3. 3. The Truth About Deficiency Judgments    As a part of our daily business of dealing with homeowners in distress, we speak to people who are being given horrible advice in relation to deficiency judgments. Most Realtors, and many attorneys have no clue about how a deficiency judgment is obtained, how it's enforced or even how much of a judgment can be sought. So we have been posting questions that we have received in an effort to help homeowners in foreclosure who may need guidance. At a minimum the questions we answer allow homeowners contemplating a short sale the ability to find out if they have a real estate agent that is competent or one that is not. Today's Question: I have a single family home in Atlanta which we hold as an income property and rent out. The house was bought with 4 of my friends. Title is held in a corporation but I am the only one on the mortgage and it's in my name, not the name of the corporation. I am behind on the mortgage and decided to sell it and listed the house as a short sale with a real estate agent. My question is this. What would happen to me if we were to stop paying the mortgage payments? permanent resident is in my wife's and my name. I have money in the bank and good income. I do not have enough income to support both houses. If the house does not sell and it gets repossessed by the bank, could they come after my personal residence and personal assets? Answer: Let's start by talking about the different legal instruments we have in play here. First, we have a deed. As you state in your question, the deed is held by a corporation. Second, you have a mortgage. These 2 documents, although usually created at the purchase (closing) of the property, are mutually exclusive. As you mention above, you are the one that owes the money because you signed the note/mortgage. The corporation (4 friends) own the house. Click Here For More Information On Deficiency Judgments  ‐ 3‐  © 2010 Real Estate Radio USA
  4. 4. The Truth About Deficiency Judgments    Now, to your specific question.... "What would happen to me if we were to stop paying the note?" As soon as you stop paying, the bank will report your late payments to the credit bureaus. This will start to affect your credit right away (as soon as reported). After a certain amount of time, roughly 30-60 days, your bank will try to contact you and try to work out payments. If something cannot be worked out, they will eventually file for foreclosure and proceed through the legal system to take back the property. Depending upon what state you live in determines how much time you have and in what manner the bank proceeds in their foreclosure route. You next question.... "In foreclosure, could they come after my house and assets?" Remember, the foreclosure lawsuit is specifically a way for the bank to recoup the amount they have loaned you. They foreclose on the mortgage so that they can sell the asset (the home) to be able to just that. THEY CANNOT FORECLOSE ON YOUR PRIMARY HOME. Well, they can if you do not pay your mortgage on your primary home, but not in the case you describe above. If, however, the get the investment home back in the foreclosure, sell it, and still do not recoup the amount that they loaned you, they can file for a deficiency judgment. (some states allow this and some don't) In Florida, deficiency judgments are indeed allowed. The judgment would be for the amount of the mortgage and fees, less what the bank recouped when the house was either sold at auction or when the bank takes possession and re-sells it as a bank owned property. So for example, if you owe $250k between mortgage and fees and they sell the property for $150k. They could then go back to a judge get a deficiency judgment in the amount of $100k. That judgment would be attached to you and your assets since the mortgage is in your personal name. Click Here For More Information On Deficiency Judgments  ‐ 4‐  © 2010 Real Estate Radio USA
  5. 5. The Truth About Deficiency Judgments    Notice I said "go back to the judge". There is so much misinformation going around about deficiency judgments. This is the single biggest fact you need to remember. A deficiency judgment is not issued by the bank, a collection agency or any other creditor. Don't be harassed by phone calls or think that someone else can call you to collect on a deficiency...well they can call...but unless a judge ORDERS a deficiency judgment, then there is none. Hence the word "judgment". That should give it away but most people somehow miss that judge part of the equation. Learn more about Deficiency Judgments so that you understand your potential liability. Don't assume that your Realtor or your attorney knows how to protect you from a Deficiency Judgment. At minimum learn what questions to ask before you get caught in a real bad situation. Click Here For More Information On Deficiency Judgments  ‐ 5‐  © 2010 Real Estate Radio USA