Deficiency Judgments

How does one avoid a deficiency judgment? Is my lender going to come after me with a potential deficiency judgment? Is a foreclosure deficiency judgment the same as a short sale deficiency judgment? What effect does bankruptcy have on avoiding deficiency judgments? How do I negotiate with my lender to avoid a deficiency judgment if I decide to short sale my home? Are there attorneys who will negotiate me out of a deficiency judgment if I short sale my home? Do all lenders enforce deficiency judgments? Are Bank of America, Ocwen, EMC mortgage, Chase, Wells fargo, Saxon all enforcing deficiency judgments?

OK, some answers. Yes the banks are seeking deficiency judgments. If you allowed a foreclosure on your property to take place instead of short selling the property, you had no control whatsoever over the matter. This is why we plead with clients to short sale the property and get a good short sale attorney to represent you to avoid the deficiency judgment at the time of the transaction. There are attorneys that work with “good” short sale real estate agents that will do this for you for NOTHING. They actually charge your lender at the closing table on the HUD-1 for their services and YOU PAY NOTHING.

Lets talk a bit about short sale vs foreclosure. First of all when you allow foreclosure it damages your ability to borrow mortgage money much much more than a short sale. The new underwriting rules show clearly that a foreclosure will prevent you from borrowing for 5 years. This will be after the “smart money 2012″ bottom. A short sale will only give you a two year time out, just in time to buy in the 2012 proverbial residential real estate bottom. All speculation of course, but you certainly want options as soon as possible.

The difference between a foreclosure deficiency judgment and a short sale deficiency judgment is control. In a short sale you have the ability to negotiate with the lender, and if you or your short sale attorney or your very good short sale Realtor are diligent and make a good argument at the appropriate time in the negotiation process you can avoid the deficiency judgment by having the lender waive it at closing. They will do this many times just to close out the deal if you bring pressure at the right instant. Timing is critical in making this request. A good short sale attorney or short sale Realtor can make a huge difference in this process. It IS important.

In a foreclosure event you do not have any control whether or not there will be a deficiency that the bank can collect from you. The bank decides without any interference or interaction with you. If they think you have assets or cash flow and just threw the lender under the bus, they will come after you for the deficiency judgment. They will sue you and harass you and try to break you down until you file bankruptcy, commit suicide or deal with them in a payment plan or a sale of some other asset you have to pay them off. Yes, the executives of these large mortgage lenders got silly rich on the tax payers. Watch Michael Moores’ “Capitalism, a Love Affair” and get some serious religion about what is going on in this Country. We are all screwed unless we teach these banks and the greedy jackass’s that run them a lesson with our votes and with the adjudication of the violations they have inflicted upon us by showing the violations to the courts and demanding from the courts the relief the law mandates. This is why we do what we do. We are here to help homeowners know their options.

Next, what can one do to protect oneself from deficiency judgments of any flavor from a mortgage company? There is something. It is so simple. It is the bully principle. Bullies do not pick on kids with baseball bats. A forensic audit of your sub prime adjustable rate loan is like taking a baseball bat out of the closet before you step outside. You have an extremely high likelihood of finding serious federal violations if you have one of these loans. We have audited hundreds and hundreds of mortgages and find actionable violations of RESPA and TILA in virtually every one. If you do as we suggest and send a copy of the forensic audit to your lender demanding that they cure the defects in your loan, your lender will think long and hard about going after you for a deficiency judgment. Why should they when there are so many others who do not know that they have a defense or a counter claim because they have not had their mortgage audited?

Ok, this is an important question. Are all lenders alike? Does Bank of America enforce deficiency judgments more than Chase, Ocwen, Wachovia, PNC, Saxon or EMC? Are you safe if your short sale was with a local lender? Will you get a better Loan Modification if you have Wachovia rather than Bank of America as a lender?

These are good questions. There are differences in how these banks are reacting to the onslaught of loan modifications and short sales. They each have different policies and methods. We actually had OneWest respond to a QWR demanding that our client pay for making copies of the documents we were requesting. Completely illegal. Recently GMAC refused to respond to part of our clients QWR stating that some of the documents we were requesting were “trade secret” protected. Both were reported to HUD.

The bottom line spirit of this post is to show the power a homeowner gets from a forensic audit. It levels the playing field for you. It allows you to set terms. It forces the bank to deal with you not from a level of complete power, but from a level of respect. If you know that you have busted your bank with a rescissionable violation of RESPA or TILA you are in the drivers seat. You can short sale your house without the looming fear of deficiency judgment harassment. You can send a rescission letter to your lender and force them to consider a principle reduction on your mortgage in your mortgage modification. It doesn’t matter whether you live in Virginia, Maryland, Delaware, North Carolina or Florida These are federal guidelines and your bank will respect you after you uncover their violations. The transition(alone) from having your lender literally telephone vomiting on you to showing you the respect you deserve is worth the cost of the audit. Thanks for reading. Our office number is 540-341-1481