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Experts Predict Flood of Lawsuits Against Unsuspecting Foreclosed Homeowners

May 31, 2010

As Riverside County loan modification lawyers, we were interested to see an article predicting an increase in lawsuits against homeowners who lose their homes to foreclosures or choose short sales. The South Florida Sun-Sentinel reported May 23 that experts predict large numbers of lawsuits for the next few years. These would be lawsuits seeking a deficiency judgment -- a court order requiring the former homeowner to pay the balance owed on a loan that didn't get paid off after a foreclosure, a short sale or another action ending the loan payments. Experts say deficiency judgments will become more common as banks try to sell the foreclosed homes they've been keeping in reserve -- but homeowners who have moved on may not realize a lawsuit is coming.

Until the housing crisis, banks rarely sought deficiency judgments. Foreclosures were relatively rare and lenders didn't believe most borrowers had enough assets to make a lawsuit worthwhile. But now that thousands of homes are in foreclosure, observers are predicting that banks will change their practices. People interviewed for the article said the borrowers most likely to be targeted by lawsuits are those who walked away despite having the money to keep paying, and angry borrowers who trashed their former properties before they left. One foreclosure sales expert said banks aren't likely to go after people who genuinely couldn't pay -- but strongly recommended that borrowers get a promise not to sue in writing. An attorney pointed out that lenders can also sell the debt to debt collectors, who will then go after the borrowers with all of the same aggressive tricks they use for other types of collections.

The situation here in California is slightly different than it is in Florida, because we are what's known as a non-recourse loan state. A non-recourse loan is one that is not secured by anything but the collateral pledged. That means California mortgages are secured only by the home itself, which means that ideally, lenders shouldn't be able to pursue any assets of the borrower's after foreclosure. However, this applies only to the original purchase money mortgage. A refinance, a home equity line of credit and a judicial foreclosure could all turn the loan into a recourse loan, opening the possibility of a lawsuit. We strongly, strongly recommend talking to a Mission Viejo loan modification attorney if you believe you could be hit with a deficiency judgment. Ideally, in fact, homeowners negotiating a short sale or deed in lieu of foreclosure should have an attorney to help them get a written promise not to sue from the lender.

If you are being sued for a deficiency judgment, believe you could be or would like to avoid it, you should call Howard Law LLC as soon as possible. We have represented individual homeowners throughout the housing crisis, and we understand all the most typical financial and legal strategies employed by lenders. Our Seal Beach loan modification attorneys represent homeowners who are seeking a fair loan modification, helping them to cut through red tape and doublespeak by lenders who don't seem to intend to actually grant a loan workout. We have a record of success in loan modifications that includes changes to the structures of exotic or subprime loans, interest rate cuts and changes to the repayment period.

Howard Law offers free, confidential case evaluations, so there's no risk in speaking to us about your rights and your case. To set up a consultation, call us toll-free at 1-800-872-5925 or send us a message online.