Tip 11-2012: Foreclosures and Deficiencies
A prior tip (Tucker's Tip 4-2012) discussed the recent trend that certain lenders in special circumstances may foreclose more quickly on a delinquent loan. In these circumstances, the foreclosure may occur sometimes as soon as the Borrower is only four months delinquent. (The normal foreclosure does not occur until the Borrower is many more months delinquent.)
A related problem with foreclosures is the amount the foreclosing bank may bid at the foreclosure sale. The foreclosing bank is usually the successful bidder at the foreclosure auction. Whatever they bid is then deducted from the amount owed (outstanding principle, accrued interest, foreclosure fees, etc.) The foreclosing bank appears in most instances to be bidding less than the amount owed. This results in a deficiency that the Borrower may still owe the foreclosing bank.
In this same regard, the Borrower may also have a second mortgage (HELOC, Line of Credit, Equity Line, etc.) The foreclosure by the first lender will unfortunately create another deficiency for the Borrower of the entire balance owed on these subordinate mortgages.
The possibility of these deficiencies created by a foreclosure is just another reason why foreclosures need to be avoided at all costs.
The benefits of a successful short sale far outweigh the disadvantages of a foreclosure. With a short sale, the Borrower has a reasonable possibility of having the deficiencies waived.
Contact me at 434-951-0858 or Tucker@TGBLaw.com if you have questions, or visit our blog for previous tips. Thanks for allowing us to send you this email.
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William D. Tucker, III
Charlottesville 434-973-7474 | Lake Monticello 434-589-3636