Posts Tagged ‘deficiency judgment’

Question:  My husband and I own a condo in Florida. We paid $163,000 and it is now worth $30,000. It costs us about $20,000 to keep up yearly. We are really struggling to make the payments and are thinking that we just can’t anymore. I am really worried. We own a house in New York and it has some equity (maybe $100,000). Can they come after my house in NY and put a lien or judgement on it if we foreclose? We didn’t use the house or anything from NY for the mortgage in Florida. Thanks. Also, our only income is from SS Disability and a pension.

Answer:  - This is unfortunate. You like many others have had the same thing happen to them. It’s hard to suggest what to do in this case… all you can do is all you can do. If you can’t afford it, then you can’t afford it. Yes, the lender can a file deficiency judgment against you for the loss, but most homeowners will file bankruptcy which wipes out the judgment. In this case where you have equity in your personal residence, it would be in your best interest to work out something with the bank to avoid the judgment altogether. Make sure when you work out your agreement, you settle on a “satisfaction” of the loan, that way the worst they can do is 1099 you for the amount they lost.

Question:  I have a house that is currently going through the short-sell process. I have an approval letter for the first and the second. The second is stating “BAC Home Loans Servicing, LP and/or its investors may pursue a deficiency judgment for the difference in the payment received and the total balance due, unless agreed otherwise or prohibited by law, if the short sale closes on the loan referenced above.” I live in CA and the second was an home equity line of credit (HELOC). We have already agreed to pay $2500 to the second and they have agreed, but they are still including this language in the short sale approval letter. What rights do they have to sue us later on?

Answer:  - It depends on what you agree to as part of the payoff. This is where you need to make sure you ADD to the payoff letter that the $2500 is for “full satisfaction” of the loan. See there are 2 types of payoffs. 1 is a “release of lien” which means you pay the mortgage company $2500 and they retain the right to still come after you for the deficient amount. The other payoff is a “satisfaction” which means “paid in full” – they give up their right to come after you for the deficient amount (which is called a deficiency judgment). All they can do is 1099 you for the amount lost of which you can file form 982 and in most cases claim insolvency and negate the 1099. If it was your personal residence, with Obama’s new laws in place, you may not have to pay anyway. So whatever you do, please please please get the satisfaction. Sometimes if they don’t agree to a satisfaction of loan, you’ll just have to pay a little extra more to get that piece of mind.

Question:  I owed $110,000 on a credit line; tried to sell my house, but couldn’t sell it for that amount. I walked away. I have some money in annuities and ira. Can the bank take that?

Answer:  - No they can’t take anything away from you because the property itself was pledged as collateral for the loan. All they get is the property back. What you have to watch out for is if they file a deficiency against you it the property was sold for less than the amount owed. If the file a deficiency judgment again you and you don’t have the ability to pay, the bank can then begin to garnish wages. At this point most people file bankruptcy. It is at this time where your annuities and IRA may be affected. If at all possible, try to negotiate a “deal” with the bank to get them to agree to a satisfaction which means they can’t file a judgment against you. They will just issue you a 1099.

Question: What is a Deed in Lieu? Which is better, short sale or deed in lieu? I am in So. California.
MS

Answer: – We explain what a Deed in Lieu of Foreclosure is in our free reports section. With a deed in lieu foreclosure you are giving the home back to the bank. By giving or deeding it back to the bank, the deed is considered full payment of the mortgage loan, so there cannot be a deficiency judgment. However, there are certain restrictions like all junior lien holders must be satisfied and there must be clear title. Although you’ll be avoiding a deficiency judgment, the bank will 1099 you for the deficient amount. This deficient amount is calculated by taking the difference between the fair market value (FMV) and the outstanding debt. As far as credit issues, a deed in lieu of foreclosure shows up as “Acquisition or Abandonment of Secured Property” and is very similar to an actual foreclosure.

A short sale on the other hand has fewer restrictions but is very similar in avoiding a deficiency judgment. You can ask the bank to satisfy the loan so it’s paid in full. You will be 1099 for the deficient amount. And for your credit, a short sale shows up as a “settled debt” which is very similar, however most credit experts believe a short sale is better on your credit report than a foreclosure or deed in lieu of foreclosure. I would have to agree…but it’s not by much. Any way you go, it’s going to be bad on your credit.

Question: If a non-primary residence in NY goes into foreclosure, what determines whether I receive a 1099-C or a deficiency judgment for the bank’s loss?

Answer: -A lot of times it just depends on the lender and the amount that’s deficient.