I have written several blog posts relating to foreclosure and deficiency judgments. Generally, most of the people who are in foreclosure have very little assets outside of their home and most are unemployed, which makes the possibility of a deficiency judgment unlikely.
Practically speaking, the downside risk for these homeowners is limited by their lack of any assets and by their lack of any real financial stake in their homes because of negative equity (they owe more than the home is worth). The lack of equity is due in part to the fact that they put very little or no down payment when they bought their home.
Recently, this has changed. Now, many people that I speak with have or had well paying jobs and some savings. These are the homeowner’s who are at the biggest risk of a deficiency judgment; so called prime borrowers. While it is true that many lenders have not sought deficiency judgments except in limited circumstances, it does not mean these borrowers are off the hook. If history is any guide, what will happen in Florida is this: within the next 5 years, (5 years from the date of the foreclosure sale), lenders will sell their deficiency judgment rights to collection companies. These companies will in turn begin to track down these prime borrowers to collect on those debts.
Collection agencies exist for times like these. They know that prime borrowers are the ones who are most likely to have assets and income to collect against at some time in the future. This is why prime borrowers should consult with a real estate attorney about the risks of walking away from their mortgages/home. I always advise my clients that it’s always better to help out the bank, by short selling their property in order to bargain for either a release of the deficiency or a payoff arrangement with the bank, than to just walk away. This way, they won’t have to look over their shoulder for the next 5 years and possibly longer.
If you would like more information about this topic or would like to discuss your matter with a real estate attorney, either post to this blog or contact me, Larry Tolchinsky, by email, or call me at (954) 458-8655 and I will be happy to answer your questions. I offer a free initial consultation.
I own a condo (with interest-only loan) that is rented through spring 2012. Because it is valued at perhaps 45,000 now (but I owe more than $100,000 on it), many people tell me I should walk away. My payment just dropped. I will retire in June 2011. I am planning to pay off the house I live in, leaving some funds in my IRA and some funds “exposed.” Should I attempt a short sale in another year? Is there any other way I can protect myself so that I don’t lose everything I have left?
Thank you for your column –