Foreclosure/Short-Sale Beware- Mortgage Companies Going After Deficiencies!

Until recently, it seemed pretty safe to assume that if a borrower did have a foreclosure or did a short-sale to prevent a foreclosure, that they would be protected from future claims from the mortgage company or companies.

I can't speak for areas outside of Michigan, but I can tell you that in Michigan, more and more lenders are trying to recoup whatever possible after a short-sale or foreclosure. Karen Tjapkes, Attorney with Western Michigan Legal Services joins a team of us at ICCF and Providence Home Mortgage that consists of housing counselors and mortgage staff to give us breaking news on the legal side of what is going on in the mortgage industry. It used to be common at sheriff sale for a mortgage company to make a full priced offer for what was owed. They could, therefore, then list the home with the hopes of of selling the home for as much as possible and minimizing their loss. As we all know, foreclosures have been selling at dramatically reduced prices and so we are seeing a new phenomena. The banks are not offering full price. They are offering lower, selling lower, and then coming after the debtor via other means. Per Karen, they will try to collect the deficiency through any means possible. These ways often mean garnishing wages, garnishing bank accounts, etc. For more legal advice on this issue you can contact Karen directly at (616) 774-0672x121.

I did inquire as to what assets are protected- 401Ks, 403Bs, Pension funds, etc. are protected. However, once those assets are liquefied and hit a person's bank account they are free game.

Also, certain funds deposited into bank accounts are protected such as Social Security or Disability benefits.

What Karen has been observing is that more and more people, once doing a foreclosure or short-sale are subsequently filing for bankruptcy.

Two exceptions to the bank's ability to try to collect this deficiency would be if the bank issues a 1099 or if they do a Deed in Lieu of Foreclosure. If they issue a 1099, they are essentially stating that they have written off the difference.