Deficiency Judgments Make Mortgage Abandonment Perilous
Posted by SaveAFewThousand.com Blogging Team on Monday, November 22nd, 2010 at 12:05pm.If you’ve decided that walking away from your mortgage is the best thing you can do, you may not be aware that hidden costs can spring up months or years later.
The amount of money that the lender will not see from the sale or assessment of a foreclosed home is known as the “deficiency” in real estate parlance. In many states, the lender has the option to pursue a “deficiency judgment” to regain this difference. In addition, lenders can also get fees added on for legal costs, unpaid payments and penalties.
In the end, the unlucky former homeowner could owe more than he borrowed originally and face higher monthly costs.
Virginia home owners are particularly vulnerable to deficiency judgments. In Virginia, deficiency judgments have struck homeowners years after they thought the foreclosure was the only thing to hit their finances. The only way out for many people was to declare bankruptcy. Worse, Virginia law allows for wages to be garnished to repay lenders.
Things used to be even worse: prior to 2007, the lender could also use IRS form 1099, which treats the deficiency as income, even if the former home owner had never seen a penny of it. The Mortgage Forgiveness Debt Relief Act of 2007 helped people struggling with job loss and other expenses from being taxed on this "income".
While there are changes being made to the U.S. mortgage system to give homeowners more options, there are still plenty of loopholes that can catch you unawares.
When considering your options, it’s a good idea to have expert advice. David Zadareky is a Certified Distressed Property Expert ® who can help you make the best decision for your situation.
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