Tip 28-2013: Foreclosures and Deficiencies

A related problem with foreclosures is the amount the foreclosing bank, usually the successful bidder at the foreclosure auction, may bid at the foreclosure sale. Whatever they bid is then deducted from the amount owed (outstanding principle, accrued interest, foreclosure fees, etc.). If the bank bids less than the amount owed, the result is a deficiency that the Borrower may still owe the foreclosing bank.            

A recent article in The Washington Post discussed the legal process known as "deficiency judgment" (allowed in the District and 40 of the 50 states including Virginia), whereby, "Lenders are filing new motions in old foreclosure lawsuits and hiring debt collectors to pursue leftover debt, plus court fees, attorneys' fees and tens of thousands in interest that had been accruing for years." The article cited the specific case of a man from Rockville, Maryland, who learned 3 years after his foreclosure that he still owed $115,000.00. 

Brad German, a spokesman for Freddie Mac (Fannie Mae and Freddie Mac are two of the agencies pursuing the judgments), indicated that Freddie Mac is targeting "strategic defaulters" - people who chose not to pay their mortgage but paid other bills. The agencies seem to be using their own strategy by not pursuing immediately after the foreclosure when the homeowner does not have any money, but waiting a few years for the homeowner to get a new job, save a little money, and recover a little.  

In fact, some states have up to 20 years to pursue deficiency judgments. In Virginia, the statute of limitation is 5 years. The possibility of these deficiencies created by a foreclosure is just another reason why foreclosures need to be avoided at all costs! With a short sale, the Borrower has a reasonable possibility of having the deficiency waived. It is EXTREMELY important that whoever is negotiating the short sale remembers to negotiate a waiver of all deficiencies. 

P.S. Our experience with Short Sales is that 80% of the deficiencies are waived. 

Contact me at 434-951-0858 or Tucker@TGBLaw.com if you have questions.  Thank you for allowing us to send you this email.                 

William D. Tucker, III   

Tucker Griffin Barnes P.C.   

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