Thousands of Americans who lost their homes in the housing crash but have since begun to rebuild their finances are suddenly facing a new foreclosure nightmare: Debt collectors are after them for the money they still owe by freezing their accounts. banks and garnishing their wages. and seize your property.
deficiency judgments
Often the proceeds from foreclosure sales are not enough to pay off the loan in full, plus penalties, legal bills and other fees. Using a legal tool known as a “deficiency judgment,” lenders can go after borrowers for any amount not covered by the proceeds of the foreclosure sale.
Before the housing crisis, banks often refrained from filing for deficiency judgments because they were costly and caused bad publicity. But the housing crisis saddled lenders with more than $1 trillion of foreclosed loans, causing unprecedented losses. One way lenders are trying to minimize those losses is by pressuring borrowers to pay post-foreclosure shortfalls.
Collection
Once a lender secures a judgment deficiency, they may have years to collect on the claim. In Maryland, for example, lenders have up to 27 years to collect. Lenders may also charge post-judgment interest, averaging about 4.75% per year, on the amount of the shortfall, which can drive borrowers deeper into debt. Collection can be extremely unpleasant, as laws give lenders aggressive tools to go after borrowers, including freezing bank accounts, garnishing wages, and seizing assets.
Borrowers are often surprised to discover that they still owe thousands of dollars on homes they haven’t thought about for years. Since then, many who went through foreclosure have gotten new jobs, paid off old debts, and sometimes bought new homes. Now, years later, the nightmare of their foreclosure is coming back to haunt them.
Avoid Foreclosure
In many cases, this nightmare can be avoided. When it comes to foreclosure, a common response is for borrowers to feel overwhelmed and powerless to prevent it. They become victims of their own inaction and unnecessarily accept the devastating negative consequences of foreclosure. We have all seen and read the stories of individual hardships, heartbreaking family struggles, and a national economic downturn that have caused needless foreclosures.
Help is available! Don’t accept foreclosure as the end result of your mortgage being delinquent. Resources are available at the national, state, and local levels. You can try to get free help, or you can pay for more professional representation. The key is to be proactive, seek out available resources, contact your bank, and do whatever you can to avoid foreclosure. Lenders and government programs offer refinancing options, loan modifications, temporary forbearances, and other mortgage assistance options. If, despite your best efforts, keeping your home is no longer a possibility, you can still avoid foreclosure through a short sale or deed-in-lieu of foreclosure.
Avoiding foreclosure improves the lives of individuals, families and our nation as a whole. By avoiding foreclosure and settling your mortgage delinquency, you can put foreclosure behind you forever, without worrying about a deficiency judgment years down the line. You can save your home and get an affordable and sustainable mortgage. You can immediately begin to rebuild your credit and establish stress-free personal finances. You can continue living your life and focus on the things that are truly important.
