What can I do if I have a deficiency judgement after foreclosure? 11 Answers as of December 06, 2011

Considering the vast number of foreclosures, many banking institutions are willing to negotiate deficiency judgment. However, it is on a case by case and the procedures vary according to the bank. It is advisable to seek out formal legal advice so that you can protect your rights.

Lenders typically do not pursue a deficiency action unless the property sells at or post-foreclosure for substantially less than was owed on it. For example, if the property sold for 10k less than was owed, a lender could well decide it's not worth the time and expense of filing a deficiency suit. But since you have yet to be foreclosed on, you may want to look at your other options first. Record-keeping has become so sloppy in the industry that sometimes companies have a hard time proving they have the right to foreclose on the property in the first place.

A deficiency judgment after a foreclosure is NOT automatic. The lender has to file for it within 30 days of the foreclosure saleor forfeit the right. It is rare in Georgia for a lender to file for a deficiency judgment, but you can readily check the court records. Best Wishes.

If a deficiency judgment is granted, then you likely won't receive a 1099 because the debt is not canceled. The judgment would be like any other judgment where it is possible to have wages or accounts garnished and/or personal property levied. The best way to avoid issue with this is to settle with the lender or consider filing bankruptcy and discharging the debt. Depending on where you are in Florida, not all judges grant deficiency judgments in favor of the lender.

If you are in Washington and the bank does a non-judicial deed of trust foreclosure on a personal residence. There is no deficiency allowed.

There are other options. If you have a truly negative cash flow, then you should qualify for a short sale. You might also still qualify for a loan mod under the right circumstances. Its very common to be denied for a loan mod that you actually qualify for. Have you received a notice of default yet?

I have never heard a bank say not to bother with a short sale. Every mainstream bank will consider a short sale based off the current market value. A local bank may not though. You may also want to try a "deed in lieu of foreclosure", in which you sign the deed back over to the bank and vacate the property. Make sure you get in writing that they will not pursue a deficiency judgment. Or you can file a bankruptcy and either surrender the property to the bank, or just stay in the house, but after a successful chapter 7 discharge, the lender can not go after you for ANY deficiency judgment.

Deficiency judgments can be settled both before and after a foreclosure. Typically, defendant's should try and obtain a waiver of the personal deficiency during the foreclosure law suit. Otherwise, you can settle one obtained against you simply through negotiation. As a last resort, deficiency judgments can be discharged in bankruptcy. A 1099 is an income statement issued for tax purposes. Consult with your tax advisor on how to handle a 1099. In my experience, the 1099 is handled differently depending on the property that was foreclosed (e.g. primary residence vs. investment property).

With a strategic bankruptcy filing you can stay in your home rent free for 6 months or even more and there is no taxable event - discharged debts are treated differently than forgiven debt. I need more information to give you some specific options.

The deficiency is created by the property selling at foreclosure for less than the loan amount. The debt can also be forgiven based on issues surrounding the sale. Because of this fact, it is impossible to forecast your liability after the sale. Either way, the foreclosure is a taxable event and you will receive a 1099 for forgiveness of debt income. As to the 1099, there is a provision called the Mortgage Debt Relief Act that now allows you to not be taxed on the forgiveness of debt if this is your residence (doesn't work on investment property but most investors have offsetting losses). A bankruptcy either before or after the sale will discharge the personal liability on the note thereby wiping out the deficiency. In either case, file before the bank files a lawsuit and gets a judgment. If you delay filing until you have exhausted your opportunities for settlement, you may avoid filing bankruptcy though a workout.