Many people I have spoken with, simply do not fully comprehend the ramifications of foreclosure and the potential personal liability they may face regarding the mortgage note. When you get a mortgage there is a deed of trust that allows the lender certain rights to cease the property through the state mandated process of foreclosure and there is a mortgage note. The mortgage note carries personal liability and allows the lender to pursue the individual.
Many people take the position that it is not their problem and that the lenders have their hands tied due to the sympathetic headlines and the government posturing to aid the homeowner victims. If you are fooled by this, I have an eye opener for you.
If you have a property and you are foreclosed on in a deficiency state, you will not have your day in court for the judge’s sympathy. After the foreclosure, the lender will automatically receive judgment against you through the legal process. This judgment is a superior instrument that will accrue interest at the legal limit on your credit report. It will follow your social security number for twenty years in Virginia. The only way you can evade this instrument is through bankruptcy.
If you recall, in the third quarter of 2005, Congress made significant changes to the Federal Bankruptcy Laws. Now I am not a bankruptcy attorney nor am I an expert on bankruptcy, but I do have a bankruptcy attorney on staff at our law firm so I can credibly tell you that bankruptcy is no walk in the park.
In order for you to completely remove your liability from a deficiency judgment you must qualify for Chapter 7 Bankruptcy. My understanding is that the process of Chapter 13 may only increase your exposure by requiring you to make full disclosure to the court and payments.
The key here is summed up in the word “Qualify”. There is a formula for Chapter 7 and without going into detail, most people that I have spoken with will not qualify. This means you will be at risk of the judgment. Is this risk real?
The risk is very real. A lender can delay recovery efforts and watch the economy limp along knowing some day things will brighten, the employment market will gain real traction and the real estate recovery will establish a solid foundation. At that time, knowing the tide will lift many boats including yours, they can pounce and garnish your wages and move to seize your assets. The element of surprise will be on the lenders side. Think about it. Why leave that opportunity out there? Contract law does not subside when economic sentiment changes.
It may be in your best interest to mitigate judgments, unpaid liens, and successfully navigate your way to a permanent solution today for underwater properties. There is no safety or incentive to wait for better times. Your lender or some other capitalist may have the opportunity to buy the collection rights to your judgment or lien if you don’t and collect. It has been said that one man’s troubles is another man’s opportunity. That is capitalism.
I hope this has been informative. If you need help or guidance in this area, please reach out to me.
Blogging from the front line of the housing crisis.
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