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Helping good people through bad times

Even after foreclosure, many still need debt relief

For any Chattanooga residents that have felt the pressure of not being able to make timely mortgage payments, it can often seem like a never ending problem. However, in the event that a homeowner had to let their house go, most would think that would be the end to their potential problems and they would finally have their much needed debt relief. Unfortunately, some are finding out that just letting the house go and leaving doesn't end their difficulties.

Some banks are still coming after homeowners for what is called a "deficiency judgment." These types of judgments occur when the bank sells a home but the proceeds do not make up for what was still owed on the mortgage. Before house values started to drop in 2007, deficiency judgments were incredibly rare, since most homes could easily cover what was owed. However, since house values took a huge plunge and are often now underwater after going into foreclosure, deficiency judgments are becoming more frequent. Fannie Mae and Freddie Mac representatives are claiming they are only coming after homeowners who "strategically defaulted." This means that if the homeowner could continue to pay any other bills, then the bank may pursue them for this deficiency, which could be over $100,000 in some cases.

While the system Fannie Mae and Freddie Mac use may sound fair, many people who chose to try to continue to pay bills when they couldn't afford their home could be considered in this group, even if they really could not afford the home any more. For this reason, help may certainly be needed for anyone who has gone through foreclosure but did not get the lender to waive the right to collect on the deficiency judgment. The banks have up to 25 years to collect on that deficiency. If a homeowner is sued for the deficiency it is unlikely they will be able to pay an additional $100,000 or more. For that reason, filing for bankruptcy may be needed to ultimately get the fresh start the debtor needs.

Source: Bloomberg Businessweek, "Lenders seek court actions against homeowners years after foreclosure," Kimbriell Kelly, June 15, 2013

Kenneth C. Rannick, P.C.
4416 Brainerd Road
Chattanooga, TN 37411

Phone: 423-624-4002
Toll Free: 800-257-7594
Fax: 423-624-0509
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