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Some Mortgage Lenders Pursue Foreclosed Homeowners for Loan Difference

February 8, 2010

As Rancho Cucamonga loan modification attorneys, we routinely work with homeowners who are forced by financial circumstances to consider loan workouts, short sales, deeds in lieu of foreclosure and other last-ditch financial moves. So we were interested to see an article on CNN.com Feb. 3 that explains one of the lesser-known repercussions of a foreclosure. As the article explains, a foreclosure or a short sale doesn't always end the homeowner's financial obligations. In many cases, lenders may still pursue the homeowners for the difference between what they owe on their loans and the sales price of the property. This is called a deficiency judgment, and it's achieved by suing the borrower in state court for the difference.

One woman in the article thought she was free of the debt after she was forced to short-sell her house. But about a year and a half after the sale, she received a notice saying the lender was holding her responsible for the $65,000 difference between the sale price and her loan. She couldn't pay, so she had to declare personal bankruptcy. This is not uncommon, the article said, thanks to falling home prices that make it next to impossible to sell homes for what they were worth a few years ago. In fact, lenders in many states can pursue people who let the home go into foreclosure, even if the lender knows the homeowner can't pay. In fact, state laws allow lenders to wait a few years to sue, until borrowers have gotten back on their feet financially. Whether a lender will pursue a deficiency judgment depends on the lender's own policies, the state the home is in and the types of loans involved.

As the article notes, California is a non-recourse state, which means lenders can't go after foreclosed borrowers under certain circumstances. Unfortunately, they're free to pursue deficiency judgments against foreclosed borrowers with refinanced loans and second mortgages, and those who made a short sale or deed in lieu of foreclosure. They're also free to sell those debts to debt collectors who will then go after the borrower. For our Anaheim loan modification lawyers, this means we must carefully analyze the possibility of a deficiency judgment in every case involving loan forgiveness. When necessary, we will aggressively negotiate for a legal document releasing clients from any further financial obligation after the transaction. In some cases, we can also defend clients in court against lawsuits trying to get money the borrower doesn't have and never did have through a deficiency judgment.

At Howard Law PC, we have worked with distressed homeowners since the beginning of the mortgage crisis. In almost all cases, our clients give up their homes as a last resort and don't have the kind of money lenders seek in a deficiency judgment. Our Irvine loan modification attorneys represent clients who are trying to hold on to their homes through a loan modification or forbearance, or are choosing a short sale or other financial move to avoid the credit damage and stigma of an outright foreclosure. We help cut through lenders' red tape and excuses to establish whether our clients are eligible for a loan modification that will make a significant difference in their mortgage payments. We advocate fiercely for our clients' interests in negotiations with lenders, helping them understand their rights and obligations and ensure that this transaction does what they need it to do.

Howard Law offers free, confidential consultations, so you risk nothing by speaking to us about your rights and your claim. To learn more about how we can help, please contact us through the Internet or call 1-800-872-5925 today.