Aneinfo Real Estate

Foreclosures are on the rise, and so are judgments from lenders to people that have gone through a foreclosure. While there are several reasons to try to avoid a foreclosure such as your credit, future buying power one of the main concerns is if the lender can sue you for a deficiency judgment. A lender, in most cases, has the right to sue a homeowner whom has lost their home to a foreclosure, however in most cases there is little danger for the former homeowner to be sued in the event of a foreclosure.

Understanding how the foreclosure process works will also help you understand how a deficiency is created. The liens that are affecting the property are paid off by way of a sheriff’s sale, or foreclosure action. The proceeds that are generated during the sale are used to pay off lien holders that have interest in the property. In many cases, the first mortgage holder ultimately purchases the property, and buys the house back. By making the minimum bid on behalf of them, the first mortgage holder and the most vested, wins the auction. However, when this happens they do not pay the loan off in full, this presents an issue of a remaining outstanding balance on the loan. If the proceeds do not cover the entire loan amount and therefore you have a difference between what is owed and the actual sales price this does not mean that you are responsible for the difference.

First, in order to responsible for the difference, the foreclosure laws in the state where the sale was a held have to allow the lenders to sue the previous homeowner for the deficiency. Not all state permit the lenders to do this, you will need to check your local laws for each particular case. If in the event that the state does not permit this action from the lender, then you are perfectly safe from being sued, you have nothing to worry about, the lender will not be able to take other assets such as cars, or wages from you, and they simply have to take the loss.

In the case where the law does permit the lender to sue, it is rare that they will take legal action to do this. Think about it, people that have lost their homes to foreclosure are usually in a financial position that enabled them to make the payments and lose their home in the fast place. Therefore, most lenders have the same thoughts; they are worried about how they would ever collect the money, even if there were a judgment against the previous homeowner. IN just about all case, they do not have the money to pay it back anyway so a judgment is worthless. Victims of foreclosure generally file a bankruptcy shortly after, because they are having financial difficulties and a bankruptcy is a way to help clean the slate. The fact of the mater is, lenders are not likely to pursue you personally, as in most cases it is simply a waste of time and money, and the will not recapture there loss anyway.

Therefore, in conclusion, you almost never have to worry about a lender suing you for a deficiency from a foreclosure, even if the law allows the lender too. Lenders can try to get the outstanding balance, but the additional costs to pursue it and the unlikely chance they will recoup the loss makes it highly unlikely that they will try to make you pay for the deficiency after a foreclosure. Most lenders will accept the loss, and leave the previous alone so that all parties involved can move forward.

When a property has a “clouded” title then the title is not “free and clear” which makes the property less attractive to potential buyers or lenders. In reality, once a “lis pendens” is filed, a property cannot be sold or refinanced without the buyer being fully aware of the fact that the “lis pendens” has been filed.  The only way to get rid of a “lis pendens” is through foreclosure which wipes out a “lis pendens”.

Once a lis pendens has been filed the property is considered to be in pre-foreclosure. If you subscribe to a public database like foreclosures.com, realtytrac.com and many other similar sites you can get access to the properties that are in pre-foreclosure. You can also get a list directly from your county clerk by visiting your county courthouse. In some counties these lists are even available online.

If you are investing in pre-foreclosures you are buying a house directly from the homeowner. This negotiation with the homeowner is usually done without the banks knowledge. If you are investing in pre-foreclosures you will need to negotiate directly with the homeowner about purchasing their house. Since the “lis pendens” filing is public knowledge investing in pre-foreclosures is very competitive.

If the house has no equity then you will need to negotiate a short sale with the bank. A short sale is where a bank agrees to take less than the full amount owed to them. This occurs when a buyer is only willing to purchase the property for less than the amount owed on the mortgage by the seller. In the case of a short sale the bank is aware of the process since you will need to negotiate with them. The department at the bank that is responsible for negotiating short sales is called “loss mitigation”.

There are numerous online sources of pre-foreclosure lists which make the barrier to entry in pre-foreclosure investing very minimal.  Anyone can become a pre-foreclosure investor simply buy purchasing a list of homeowners in foreclosure. Since the information is public record it can even be obtained for free by visiting your county courthouse.

For this reason, pre-foreclosure investing is fiercely competitive. Since there are so many potential pre-foreclosure investors, the homeowners in foreclosure are literally bombarded with offers to purchase their homes. This makes it difficult for investors to differentiate themselves from one another to the homeowner. Additionally there is often hostility and anger from the homeowner since they do not want to be bothered by “foreclosure sharks” or people that they perceive as trying to take advantage of their situation.

For the above reasons, pre-foreclosure investing is a difficult and competitive are of foreclosure investing. If the homeowner cannot do a loan modification or sell their house to an investor then the house goes to the foreclosure auction.