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You take a mortgage but down the line, you’re unable to pay and fall behind on your monthly payments. Consequently, the house is sold at a foreclosure auction. You shift to a new home, and you’re glad that the ordeal is over. It’s now time to start all over again, restructure your life and credit. However, a couple of years after the foreclosure, you get a call from your lenders. Apparently, you still owe them money despite the sale your house. According to the lenders, the money raised during the foreclosure action wasn’t enough to clear off your mortgage. The first question that comes to your mind is, can I get sued for a foreclosure?
Well, judging by the sequence of events, if you don’t pay the balance, your lenders will most certainly take you to court in an attempt to get what is known as a deficiency judgment.
What Should I Expect if I Get Sued For a Foreclosure?
To begin with, whether your lender can take legal action against you for a foreclosure depends on the laws of the state where you live. Nonetheless, in most states the law provides that lending institutions can sue borrowers for deficiencies after a foreclosure. When a lender successfully sues you for a foreclosure and has a court-awarded judgment in hand, the next course of action is to attach a lien to other property you own and most probably have part of your wages directed toward paying off the deficiency.
How Is My Foreclosure Lawsuit Worth?
Your lender will be seeking to recover the balance owed after a foreclosure auction. The amount will include interest accumulated over the years and the legal fees. Take the Jose Santos Benavides case for instance. Benavides, a Salvadorian immigrant, took a mortgage worth $469,000. Three years after foreclosure, his lender, Lehman Brothers files a suit demanding $155,000 as the remaining balance. Benavides still owed $95,000 on the mortgage and an additional $21,000 in unpaid interest. The interest may fluctuate from time to time depending on the market forces.
In some states, there’s a cap on the amount lenders can recover in deficiency claims based on the outstanding mortgage debt and the property’s fair market value.
Does The Theory of Statutes of Limitations Apply to Foreclosure Suits?
The theory of Statutes of Limitations states that a plaintiff has a specific period within which to bring a lawsuit against a defendant. If the claimant fails to file a case within the time limit, he or she foregoes the right to sue. In foreclosure suits, the lender has up to 30 years to pursue deficiency judgment depending on where you live. In some states such as Kansas, a deficiency judgment has to be sought at the time of foreclosure.
Does the Law Prevent The Lender From Suing Me for a Foreclosure?
Although in very rare cases, the lender may not a file deficiency suit if the house used as security for the mortgage was the borrower’s primary residence. Again, this law is applicable is some states only.
Also, the lender may not pursue outstanding mortgage debt if there’s nothing to recover. Debtors who have no assets or income are “judgment proof,” and lending institutions won't sue them for a deficiency.
What If I Can’t Pay the Deficiency?
If you cannot manage to pay back the deficiency and you want to avoid garnishing of your wages or freezing of your accounts, consider talking to your lender. Negotiate a repayment plan that you are can afford to maintain. If the lending institution refuses to yield or the negotiations break down, your best option would be to file for bankruptcy. Consider filing for Chapter 7 bankruptcy and it will eliminate the outstanding deficiency debt, as well as other unsecured debts. Chapter 13 bankruptcy may be an option but only when you can pay part of the balance. Contact a bankruptcy attorney if you think it offers the best way out of your situation.
Should I Seek Legal Help If I Get Sued for a Foreclosure?
If you get sued for mortgage deficiencies, you need to know your legal options. Be sure to call an experienced foreclosure attorney in your area immediately if you’re in such a predicament. The lawyer will offer advice on what you should do depending on the circumstance surrounding your case. Besides, an attorney will come in handy if filing for bankruptcy is you best option. Consultation is free, and you don’t want to wait until it’s too late to get legal help.