The following questions and answers serve to provide some general information about what happens after the foreclosure process regarding further actions a mortgage lender may or might take against the former homeowner. My advise is that you check with a real estate - foreclosure attorney for specific legal advise and guidance. There are different rules in each state that apply as to the exact protocols and procedures of a foreclosure proceeding - timing - homeowner legal rights - lender legal rights - subordinated lien holder rights.
Common Questions About Foreclosures and Deficiencies
Q: What if I own an investment property and it forecloses; will I get a deficiency judgment for this?
A: Regardless of how the bank enters a foreclosure, the bank can not go after the homeowner for any unpaid mortgage balance on the mortgage. The anti deficiency law would apply to all properties that meet the physical requirements. A piece of property does not have to be owner occupied. Investment properties are covered by the law as well. You do need to talk to your legal advisor about this however.
Q: If I had a piggy back loan like an 80/10 and I foreclose can the lender come after me on the 2nd mortgage as well?
A: It does not matter if it is a first or a second mortgage. The bank can not come after you for a deficiency judgment as long as both loans were used in the purchase and acquisition of the property.
Q: I have my original loan from the house that I live in currently and it forecloses, will I receive a deficiency?
A: Regardless of how a lender goes after you on a foreclosure, they can not come after you for any unpaid balance on the original mortgage loan.
Q: What happens to the second mortgage after the foreclosure?
A: The second mortgage gets erased by the foreclosure of the holder of the first mortgage. As long as the second was obtained for the purchase of the home then the second mortgage holder cannot come after you for a deficiency judgment. If you bought a new Cadillac after you closed the property then you may be issued a deficiency. Many homeowners think that they are ok in terms of deficiency, but you are only covered on the loans that were used to acquire the property.
Q: If I refinanced my home but did not do a cash out refinance can the bank still come after me for a deficiency?
A: The bank probably cannot come after the you for a deficiency judgment. If the bank forecloses with a trustee sale, then the bank cannot go after the you for a deficiency. The only risk is if the bank goes for a judicial foreclosure, in this case they could go for a judgment against you.
Q: If I did a refi and pulled money out to buy other properties can I get a deficiency?
A: Because the money was not used for the purchase of your primary home you will probably not have protection. It there is a trustee sale, then the lender can not come after the borrower with a deficiency. The only risk of a deficiency would exist if the bank would pursue a judicial foreclosure in which case the bank can go after deficiency judgment against the homeowner.
Q: If I used my home equity line for money to go on vacation will I be in jeopardy of a deficiency?
A: Because the money was not used for purchase of the property, you will not have purchase money protection. You can be issued a deficiency judgment in this instance.
Q: Will I get a 1099 issued to me in this instance?
A: Unfortunately, Federal Law generally requires that any debt that has been forgiven by a lender must be treated as income and is taxable.
Read: tax related information following a foreclosure for further tax related information following a foreclosure.
Dave Mason has been in the mortgage and consumer finance business for over 10 years. He has a Finance and Real Estate degree from the University of Arizona.
This Article is designed to be of general interest and should not be considered legal advice. The specific information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser or attorney.
