It’s called a deficiency judgment and it’s a nightmare for former homeowners who thought they were free of a mortgage after the bank foreclosed on their property
Foreclosed homes hardly ever sell for an amount that covers the outstanding loan. 41 states plus the District of Columbia allow lenders to sue the homeowners for the difference between what the house sold for at auction and what was owed on the mortgage. Making a bad financial situation worse for distressed homeowners. The deficiency judgment is good for up to 20 years in most states. Credit unions and smaller banks are the most aggressive pursuers of judgments.
Many homeowners whose homes went into foreclosure played by the rules, waited the necessary time and have purchased another house. Now they find judgements agianst them and leans against their new home. The best advice I can give? If you’re facing foreclosure speak to an attorney about a possible deficiency judgment. You may find including your home in a bankruptcy the only way to protect yourself from future debt collectors.
Thanks to my friends at Bankrate.com for their help with my numbers.