How far can a Mortgage Lender go to collect Deficiency Judgments?

Through deficiency judgment, court holds you liable for the mortgage debt that remains unpaid after foreclosure. When the selling price of a property is less than the actual loan balance, it becomes difficult to eliminate the mortgage debt completely. In such a circumstance, the lender may take legal action against the borrower to collect the amount that remains unpaid after selling the property. Apart from the unpaid debt, there are the other charges associated with the foreclosure procedure that can be included into the deficiency judgment.

The ways mortgage lenders may follow to collect the deficiency judgment

Now, the lenders will definitely try their level best to collect the due amount by pushing the borrower for deficiency judgment. There are several ways through which the mortgage lender may try to collect the deficiency judgment. The ways have described below:

1. Through wage garnishment: In case of deficiency judgment, the mortgage lender can legally garnish your wages. Of course, there is a specific limit for wage garnishment that the lender needs to follow. The federal law allows borrowers to exempt some of the personal income. As per the current laws, a creditor can’t garnish more than 25% of the disposable earnings. For borrowers with low-income level, the percentage is a bit lower. There is also specific time-frame for how long your wages will be garnished. The rules and regulations for wage garnishment aren’t same for every state. The time limit may vary from state to state.

2. By using a bank levy: Bank levy is another way for lenders to collect the money they owe. By using a bank levy, lenders can easily take out money from your account. Lenders may freeze your accounts and make you pay the deficiency judgment. If you’ve ever paid your lender with the checks drawn on any of your open bank accounts, then it’ll be easier enough for the lender to levy your account. However, it’s also possible to exempt a portion of your funds. Funds that come as government benefits or as child support can’t be levied. You need to prove thoroughly that the accounts are protected and you legally deserve the exemption.

3. Through the deficiency judgment lien: The lender can even get a judgment lien against the borrower’s personal property. For instance, if you own another real estate property within the county, then bank can easily foreclose it to recover the loss. Of course, there must be enough equity in the property to make the bank’s effort worthwhile. In case, your property is in another county, the lender may transfer the deficiency judgment to the county where the original property is situated. You must also note that the lender is capable of setting a security interest in the property that you owed during the time when judgment lien was filed.

How strong are the chances for lenders to collect deficiency judgment?

There is no guarantee that the lender will always try to collect the deficiency judgment. Yes, having a judgment doesn’t mean the lender will surely collect it. After all, lenders will have to spend enough to pursue the collection. Only if you’ve enough bank balance, steady source of income or other real estate properties, then your lender may try to collect the judgement. If the lender decides not to opt for collection, then he’ll write off the debt and issue a 1099-C form to inform IRS about it. Then you may have to pay off taxes on that forgiven debt.

In case the lender plans to collect the judgment, then you’ll have to be ready to defend yourself and your accounts. Apart from all the other mortgage information, you need to know in detail about the exemptions. Through proper planning you can protect some of your assets from the deficiency judgment.For more information on mortgage you can follow us here.