Foreclosure and deficiency judgments

One sign of a terrible economy,  to me, is how many times per week I discuss with a client how foreclosure works. Clients are worried about foreclosure, but they are especially fearful that the foreclosing lender will obtaining a deficiency judgment against them.  If you check any real estate advice website like Trulia, there are many, many people asking about the effects of foreclosure and how deficiency judgments work. (Update: Illinois courts are now entering deficiency judgments routinely on first mortgages. This post discusses the increase in deficiency judgments.)  Here’s how  deficiency judgments work in Illinois:

Are deficiency judgments allowed in Illinois?


What is a deficiency judgment?

If a property is foreclosed, it is sold at a sheriff’s sale. If the property owner owed $100,000 on his mortgage when he was foreclosed, and the property is sold at the sheriff’s sale for $80,000, then the lender can get a deficiency judgment for $20,000.00. This means a court order is entered saying that the owner owes the lender $20,000.00. (As discussed below, obtaining a judgment and actually collecting the judgment are two different things.)

When is a deficiency judgment entered?

Usually, the deficiency judgment is requested in the foreclosure complaint. The judgment is entered at the foreclosure sale confirmation hearing after the sheriff’s  sale at the end of the foreclosure.

Can the lender get a deficiency judgment if I was served by publication in the foreclosure?

No. You have to be personally served by the sheriff or process server. The lender cannot get a deficiency judgment if you were served by publication (as many homeowners are). Another way to get a deficiency judgment entered against you is if you file an “appearance” in the foreclosure case.

What are the chances of the lender coming after me for a deficiency judgment?

If the property was your primary residence, the chances are slim (my  estimate, totally unsupported by facts or statistics, is 5%) that a deficiency judgment will be entered. Very few deficiency judgments are being entered in Cook County according to attorneys I know who practice in the foreclosure area. If the foreclosed property was investment property ,or the mortgage was held by a small local lender, then the chances of a deficiency judgment increase greatly.

What can the lender take from me if they get a deficiency judgment?

A deficiency judgment is like any other judgment that is entered for an unpaid medical bill or unpaid credit card. After the judgment is entered,  the judgment holder serves you with a “citation to discover assets” and you have to go to court and produce a copy of your tax return and a list of your assets.  They use this information to garnish your wages or to take any non-exempt assets from you to pay the judgment.

What assets are exempt from collection after a deficiency judgment?

These items are exempt from judgment:  Life insurance, 401ks, IRAs, $15,000 in equity in a house ($30,000 for a married couple). If your house is titled as Tenancy by the Entirety (married couples and primary residence only) and provided the judgment is only against one, not both, of a married couple, then the entire house would be exempt.  Since we are talking about a foreclosure, it is unlikely that the judgment debtor will even have a house to worry about.  85% of wages are exempt from garnishment too.

How can I get rid of a deficiency judgment?

The only way to get rid of a deficiency judgment is to file a chapter 7 or chapter 13 bankruptcy. A chapter 7 wipes it out altogether. In a chapter 13, it is partially repaid.

Can’t I just give my other assets to my relative to hold for me?

You can gift assets to a relative. But any transfer to a relative or anyone else that is not “for value” can be undone as a fraudulent transfer.  Transfers to relatives are especially suspect. In addition, there is the risk that your relative will not repay you or may get divorced or file his or her own bankruptcy.

If my lender does not ask for a deficiency judgment in the foreclosure, can my lender file suit against me for a deficiency judgment after the foreclosure?

Yes, Illinois law specifically allows a lender to file suit against a borrower after a foreclosure as a separate collection lawsuit.  With first mortgages, this is very rare and most likely will not happen, unless the lender is a small bank or the property was not your primary residence. Some lenders holding foreclosed second mortgages (especially Citibank and Wells Fargo) now hand over the loans to collection agencies to file a separate lawsuit against the homeowner for breach of contract. Read more about that here.

Can my lender file suit against me for a deficiency judgment after I sell my house in a short sale?

Yes. The best practice is to negotiate a “no deficiency”  provision in your short sale.  If you can’t  get that from the lender, then you will have to wait it out and hope that the lender does not ask for a deficiency judgment in the future. Most likely they will not pursue the borrower, but you never know for sure.

If I deed my property back to my lender in a “deed in lieu of foreclosure” can my lender get a deficiency judgment against me later?

No. The lender cannot get a deficiency judgment. Unfortunately,  a deed in lieu of foreclosure is kind of the equivalent of a unicorn; one doesn’t exactly show up in your back yard every day.

How long is a deficiency judgment last?

A judgment in Illinois is valid for 7 years from the date it is entered.

I’ve heard that in a foreclosure my lender can 1099 me for “forgiveness of debt.” Can they 1099 me and get a deficiency judgment against me too?

Usually, if a lender 1099s you, the lender will not seek a deficiency judgment. This is just how lenders operate, not the law.  By law, the lender must issue a 1099 after a foreclosure or short sale. The issuance of the 1099 does not mean that the debt is erased by the lender. It just means that the forgiven debt is taxable to you.

If the lender 1099s you and later seeks a deficiency judgment, the lender would have to issue a revised 1099, that’s all. So the issuance of a 1099 does not bar a deficiency judgment. Technically, the lender can 1099 you AND file for a deficiency judgment. You have to keep in mind that the lender could still get a deficiency judgment after a 1099 is issued. The only sure elimination of both the 1099 and deficiency judgment is to file bankruptcy before the 1099 is issued.

There are several cases that deal with this topic: In re Zaika, a PA bankruptcy court case  and AmTrust v. Fossett in AZ are a couple that summarize the law.

If the foreclosed property was your primary residence,then you have no income from the 1099 by law under the Mortgage Debt Forgiveness Act. If the property was not your primary residence, then you will have phantom income from the 1099 to deal with.

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  2. Short sale vs. foreclosure
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  4. The Quirks of Buying a Fannie Mae Foreclosure

58 thoughts on “Foreclosure and deficiency judgments

  1. I have not been able to figure this one out..

    I paid private mortgage insurance from day 1 up on till 6 months ago of my loan. Since no one is paying the private mortgage insurance now, does it automatically cancel? OR does since private mortgage insurance is there to protect my lender in case of default, if I get sued for a deficiency judgement do I have to pay or does the “insurance kick in”?


  2. Patricia,

    Good question about deficiency judgments and private mortgage insurance (PMI). PMI is solely for the lender’s benefit, not yours (unfortunately).

    PMI only covers a portion of the mortgage (10-20%), not the whole thing, and the PMI company pays the lender if you default and the lender makes a claim under the PMI policy.

    There is still the chance that you could be liable for a deficiency judgment even if the lender collects from the PMI company, but deficiency judgments are very rare in Illinois, and the
    chances of the lender getting a deficiency judgment are slim to none.


  3. Where does “Illinois law specifically allows a lender to file suit against a borrower after a foreclosure as a separate lawsuit”?


  4. My family lived in Illinois and took a job in Missouri. We tried renting… no good. Our house has been on the market for a 8 month period and now since Jan. of this year. We are having a judgement filed against us tomorrow actually and a sheriff’s sale will follow. We were able to secure a loan for our home in missouri as we have 4 children and needed a place to live. The home in Illinois was our primary residence until we had to leave. We had 2 solid offers on our house in January and Bank of America waited 5 months to approve the offers… needless to say the people moved on. We owe 172,000 on it and it is now on the market for 130,000. It is being taxed at 191,000. My question is: our monthly income comes way short of meeting all our bills. We stopped making the house payment on Illinois home last November. Should it be expected that Bank of America will pursue us for the difference due to it not being our primary residence anymore? We are slightly nervous about this. Thanks

  5. Brandon,

    If you took out the mortgage as a mortgage on your primary residence, then that’s what the lender assumes that it still is. The lender doesn’t check on the property or update the status of the loan. It was a loan on your primary residence initially, and that’s what it remains.

    What I meant in my post is that if the loan was originally a mortgage on a three-flat or an apartment building, or was an investment loan to buy investment property, then the lender might be more prone to pursue a deficiency judgment. If the loan was initially owner-occupied then that’s what it remains.

    This does not apply to you and a deficiency judgment against you is unlikely.

    Hope that helps.


  6. Hi Tom,

    Great information here. Can I ask you a few questions about strategic default? I live in a 210 Unit Condominium Complex in suburban cook county. It was built in 2002 -2004, I am one of the original owners. The building leaks water through the room and walls and we are in the process of repairing it. In the next six to twelve months a special assessment of approximately $10,000 per unit will be levied for the repairs. I am also slightly under water with this mortgage. I owe approximately $245K and estimate it is worth about $235 to $240. I want to move from this condo for several non-financial reasons (more room, better location etc). I am considering a strategic default becauase one the looming special assessment and two the pent up demand to sell units (a lot of unhappy residents here). I belive after the repairs are complete there will be over 100 units for sale, plus the building lacks adequate parking, has outrageous assessments (mine are $457 monthly) and now the building has a reputation as a “sick building.” I don’t believe that I will be able to sell anytime soon – even if I could arrange a short sale. My questions for you: should I execute a strategic default? who is responsible for the special assessment if I do default, me or the lender? Am I responsible for the monthly assessments? Who is responsible for property taxes (taxes are not escrowed)? I have the financial means to easily make the mortgage payment and cover the special assessment. Any information or guidance is appreciated.
    Darryl Wolfe

  7. Darryl,

    The decision on whether to strategically default is a personal one and I really can’t make any recommendation. If you do quit paying on the mortgage, the association will file suit for both the association dues and special assessment, so you will have to pay both of those until the foreclosure is over.

    Unescrowed real estate taxes usually are NOT paid by the owner. It takes several years to lose a property for unpaid taxes and the foreclosure will be over long before that happens.

    I would be happy to discuss it more with you by phone if that would help. Thanks.


  8. Thanks for all the information.

    Five years ago I went thru a foreclosure and the house was sold at a sheriff’s sale for about $20,000 less than what was owed.

    Washington Mutual was the original lender. After the house when into foreclosure, they sold the loan to another lender to to the foreclosure.

    At the time of the foreclosure no Deficiency Judgment was filed.

    I have not heard from anyone for 5 years.

    No I’m getting calls from SRG Strategic Recovery, a collection agency, demanding that I owe them the full amount of the loan.

    They were calling it a second mortgage which is not correct. I never had a second mortgage on the house. I have asked them for proof and they have not provided anything for 2 months.

    Today I get my first letter from SRG wanting me to settle for $22,600 or agree to pay them $99 a month until the original loan of $113,000 is paid in full.

    That would be 95 years from now. As I am already 46 years old I don’t think I will be around when it is paid in full.

    Any suggestions?


  9. Bob,

    We are starting to see collection agencies get aggressive, mostly on foreclosed second mortgages. They usually call and send a series of letters first. Then they sometimes file a lawsuit for “breach of contract” for failing to repay the note.

    Whether it was a first or second mortgage really is immaterial.

    If they file a suit against you the only way to get rid of it is to settle or file a bankruptcy. This collection agency says on their website that they only deal with seriously delinquent debt (which a 5 year old foreclosure certainly is). They charge a contingent fee meaning that they only get paid if they pry money out of you.

    How you approach this depends on your current assets and income.

    I would be happy to discuss it with you in a phone conference. Good luck and sorry to hear about that this won’t go away.


  10. Tom
    I own a condo and had purchased a second home that is now my primary residence. I bought the new home at an amazing price and it’s bigger and better for my future in the long run. I don’t have the funds to keep paying for both places nor do I make enough renting it to cover the mortgage. What are my best options? Is a deed in lieu available to me?

  11. Jeremy, I would need more information to make a recommendation. Many clients bring up deeds in lieu of foreclosure, but I have yet to see a single lender accept a deed in lieu. If you would like to make a phone appointment we can discuss your situation. Thanks. Tom

  12. I currently own a rental property in Rockford, Il that I want to walk away from. I have a 1st mtg on it for $55k with ASC and a 2nd mtg on it for $15k with SLS. Are these mortgage companies REALLY going to put a deficiency on us for loans this small? I dont have any assets for them to take. The mortgages on our primary house are more then the property is worth. So i would think the mortgage companies putting a lien on that property is silling since it is not worth anything anyway right?? Any advise on how this might play out?

  13. Tiffany,

    Walking away from an investment property is not a good idea. You should always try a short sale first. The problem is that you will be 1099’d after the foreclosure for both mortgages. This will cause income tax problems for years. Deficiency judgments are unlikely, but possible.

    The only way to clear off the 1099s and the liability on the mortgages is to file chapter 7 BEFORE the 1099s are issued.

    Good luck and you should discuss your case with an attorney. I would be happy to discuss your case by phone.


  14. Tom,

    I live with my girlfriend in a townhouse (lake county) that is in her name. We ran into some financial problems and stopped paying the mortgage about 4 months ago so we could pay down/off some credit cards and other debt. We recently received foreclosure papers. We owe about 150k, and the property will not sell for that amount (maybe 115-120k).
    I am not on the mortgage and have never owned a home. With this amount of negative equity, my idea is that we allow the home to go into foreclosure and purchase a new home in my name. I am worried about the deficiency though. I know you do not want to give advice on walking away, but does this seem like a situation you have heard of before? Would walking away, or admitting defeat to the bank, be a better idea then a short sale? (it is primary residence, she has no assets to lose, I am not on the mortgage – but we have a joint bank account, as well as individual accounts)

    Any advice will be much appreciated.

  15. Hi Tom,

    My husband and I moved to New York last year and tried to sell our house Illinois through a realtor. We were able to get a short sale contract on the house, but our buyer walked because the bank took so long to process the short sale offer (U.S. Bank). The bank is about to foreclose on the house. We also have PMI on the house. Can the PMI company get a deficiency judgment against us and garnish our wages in New York even though the property is in Illinois? Are PMI companies more likely to be granted deficiency judgements than are banks and does the f act that we now rent in another state affect this at all?


  16. Debra, You did the right thing by trying a short sale. Unfortunately, short sales close only about 50% of the time. In regard to deficiency judgments I have not seen any increase in those lately. In fact, I have yet to run into a single one here in Illinois. I have read that if PMI is involved, the PMI company can be more aggressive in pursuing a deficiency judgment, but I have not seen a single case where that actually happened.

    If the PMI company did get a judgment they could garnish your wages no matter where you lived. The fact that you rent in another state has no bearing on it. Overall, it is unlikely a deficiency judgment will be entered even with the PMI. You would have to file a chapter 7 bankruptcy if that happened.

    Sorry to hear you are in this position.


  17. Elliot, I don’t understand why you would stop paying the mortgage and instead pay down credit card debt? It sounds like you already made the decision to quit paying the mortgage and to walk away. I would try a short sale first to lessen any deficiency.

    It’s unlikely a deficiency judgment will be entered against your girlfriend. She would not be on title to the new house so a deficiency judgment would not attach to it. Since she has no other assets, she can file a chapter 7 if a deficiency judgment is entered and the judgment would be discharged. Tom

  18. Help! I am so worried and feel helpless.

    I have a house in Illinois that is empty that I own that has zero equity in it. I am current on all my payments, but won’t be soon. I did live in it, but due to a job transfer I relocated and purchased another home in another state that I currently live in.

    There are renters in it, but they are moving out. I am going to put it on the market for 2 months and hope it sells, but 12 of our same unit on the market are not selling. So we will probably have to foreclose.

    My question is should I hand over my keys to bank of america and will they take them?
    Will they work with me after they sell it to re-pay the loss?
    Will they try to take the home I live in?
    I don’t want them to garnish my wages.
    Can they come after the home I live in?

    Thank you so much for your help.

  19. Kristy, I would have to know if this was your primary residence (lived in for any 2 of last 5 years) or if you converted it to investment property by renting it. In answer to your questions, yes the lender will take the keys, but they rarely or never accept a deed in lieu of foreclosure. After a foreclosure they will either 1099 you or file for a deficiency judgment, but not both. Deficiency judgments are rare in Illinois, but if they got one they could garnish your wages and file a lien on your new house. I would need more facts to advise you. Please feel free to call if you want to discuss. Tom

  20. Hi Tom,
    Thanks for your timely response! It now turns out that we have a new short sale offer as we race against an impending auction date. Our realtor is asking us to sign a short sale disclosure form in which it is explicitly stated that a deficiency judgment may be sought by the bank and that acknowledges that we’ve consulted an attorney. In addition, he has asked that we sign a hold harmless agreement in which we agree that we’ve had the opportunity to seek legal counsel and that we hold the realtor responsible for nothing. I thought I had read somewhere that when doing a short sale, one should seek language that prevents a deficiency judgment. Is there language of this sort that we should be seeking in a short sale and is it unwise to sign these forms?

    Thanks in advance, Tom!

  21. Debra, Glad to hear you got an offer. Things do seem to be picking up a little.

    The real estate agent is trying to protect him/herself from you later claiming that you did not know about a deficiency judgment. There is no requirement that you sign the disclosure or hold harmless that he asks you to sign.

    You should always ask for a waiver of any deficiency when negotiating a short sale. This is contained in the short sale approval letter once you get it.

    Good luck.


  22. Hi Tom –

    Long story short – going through a divorce which casued much financial strain and drain. We are both out of our primary residence and we are very close to getting approval of a short sale with Citimortgage (serviced by BofA) for the 1st and BofA on the 2nd. We asked for the deficiency waiver and were told no and although they do not currently pursue deficiencies, collection may be pursued in the future. The deficiency for both the 1st and 2nd will be approximately $350k. Is the deficiency automatically considered a judgment? If not does the deficiency show up on our credit report? If the Bank does not file for a deficiency judgment (that would expire after 7 years) does the “threat” of a deficiency judgement hang over our heads indefinately?

    My soon to be ex seems to think that the trend will be that the Banks will sell these deficiencies to collection agencies. Will they have the same 7 year statute of limitations?

    Any help would be most appreciated!!

    Thank you! Hayley

  23. Hayley,

    You should always ask for a waiver of the deficiency in a short sale. Unfortunately, many agents and attorneys don’t ask for it or ignore in their zeal to close the deal. The deficiency is not automatically entered and, in fact, is rarely entered.

    Unfortunately, the threat of a deficiency judgment or collection agency does hang over your head for 10 years.

    Many second mortgages (not first mortgages) are being sent to collection agencies. In fact, just yesterday Wells Fargo filed a collection action against a client on a second mortgage before the foreclosure was even done. The statute of limitations on collection actions is 10 years (7 years is how long a judgment lasts after it is entered).

    Good luck in closing your short sale.


  24. Tom,

    My home has been on the market (short sale) for seven months with no offers. The bank (GMAC) stated that if an offer is received, all legal proceedings to foreclose would halt. We finally received an offer last week and quickly submitted the short sale packet.

    However, they are still moving forward with the foreclosure proceedings which take place next week.

    Is this normal? Once the motion is filed with the courts, do I have a bona-fide foreclosure on my record regardless of whether or not the short sale offer is accepted?



  25. Lori, I would need to know more about the status of the foreclosure to answer this.

    Generally, if the lender knows that there is a short sale pending they will extend the redemption period so you can pay they off through the short sale.

    Or they will put the foreclosure on hold, but not dismiss it.

    I would just make sure the foreclosure attorney for the bank knows about the short sale.

    Best of luck in the short sale.


  26. Tom,

    I have a few questions for you.

    If your wages are garnished due to a deficiecy judgement and the person whose wages are garnished retires and his income is now his pension, what will happen to the garnishment?

    Also, is it easier for a bank to obtain a defiency judgement if a short sale had been transacted. I heard that it was better to allow a property to go to forclosure rather then negotiate a short sale.

    When the “mean” score is calculated in a chapter 7, do the courts analyze the tax return’s adjusted income?

  27. John,

    In Illinois, pension income is exempt from garnishment, but it has to be kept separate from other income.

    Generally, it is better to try a short sale before a foreclosure. Deficiency judgments are rare in both short sales and foreclosures. It is not any more likely to happen with a short sale.

    The “means” test is hard to compute and you should have an attorney do it for you. The first level of the means test used to see if you cna file chapter 7 bankruptcy uses your gross income.


  28. Tom,

    We bought a house in 2006 and now still paying up to date with the very high interest mortgage. Few months ago, we tried to apply for a refinancing or loan modification but we did not qualify since the property is having a large negative equity and we were turned down for the modification, they said we can still pay the mortgage. We dont have any savings and my kids will be going to college few years from now. With the negative equity, we dont have any point at all to keep the property. We plan to go on foreclosure but also afraid with the deficiency judgement. Can we qualify for a bankruptcy filing if ever a judgement comes even if we still have the same income as what we have now? Hope to hear your best advice. Thanks.

  29. Hi,

    Yes, you can file a chapter 7 bankruptcy that would discharge a deficiency judgment or collection agency case if your income is below a certain level.

    A family of four can earn $81,000.00 per year and family of three can earn $71,000.00 per year and still qualify for a chapter 7. (This is called the means test.)

    There are means test calculators online, but they are hard to understand and it’s best to have an attorney calculate it for you, but that gives you a general idea.


  30. Hello,
    I have a question, but first the facts. I lost my job in July 2010 and am still unemployed. We were in Chapter 13 bankruptcy which is now being converted to a Chapter 7. In the meantime no mortgage payments have been made since July as they were more than my unemployment. We immediately tried working with our mortgage provider to see if things could be salvaged via those “wonderful” government programs, but it has taken them over 3 months and several requests to get the paperwork to our attorneys and at point we do not qualify for any of the programs due to lack of enough income or our now being 4 months behind in payments. Now my question is if we now surrender our home a part of the Chapter 7 proceedings does this protect us from any deficiency judgments? This ways heavily on my mind as with being unemployed already I do not know what they would expect to get, and I do not want a deficiency judgment looming over me forever once I get back on my feet. Any help would be appreciated.

  31. J.T.

    First, sorry to hear about your situation.

    Second, I agree that HAMP and the other modification programs are terrible.

    Finally, since you converted to a chapter 7, you will not be liable for a deficiency judgment. You don’t really surrender the house in a chapter 7 (you keep it), unless your equity is more than the exemption amount which is $15,000 for one person and $30,000 for a couple.

    Best of luck going forward.


  32. Tom,
    Thanks for the piece of mind on the deficiency judgement. However, we will probably be surrending or giving up the home or whatever the terminology is as we can no longer afford the payments due to my unemployment. Is it still true that we are not liable for a deficiency judgment.

    Thank you in advance,

  33. J.T.,

    If you file a chapter 7, you will not have a deficiency judgment no matter what happens (keep house, surrender it or it is foreclosed).



  34. Thank you very much sir, that is a complete weight off my mind and once less worry for my family during this diffucult time. Again, thank you very much.

  35. Tom, I have an investment condo unit in Chicago that is currently upside down. I owe $300,000 on the first, and $38,000 on the second with National City that is now PNC. I’m currently losing around $1000/month on this condo and would like to try a short sale. There are other owners in my building that are currently shorting their units for less than $200k. Also, I live in California and have other properties in California that are doing OK, and just lost my job, so I’m depending on the income from the properties for the time being until I find another job. Any idea on what course of action I should take, and how I can protect my other assets from a deficiency judgment? I don’t think I will qualify for bankruptcy. Thanks, Warren

  36. Warren, The Chicago condo market is brutal, for sure. A short sale is your best initial move, but only 50% of those close. Also you have to keep paying the association dues until the short sale closes or the unit is foreclosed, because the association will pursue you vigorously for unpaid dues. Your biggest problem is the 1099 that will result after a foreclosure or short sale. Since this is an investment unit (not primary residence) you owe taxes on the 1099’d amount unless you can show you were insolvent. A deficiency judgment is unlikely. But you may get a collection agency action on the second mortgage, although I have not seen PNC do that yet. I would suggest meeting with an experienced bankruptcy attorney in CA now to talk over your case. You would have to file a bankruptcy before the 1099 is issued to stop it from being taxable to you. Thanks. Tom

  37. I have a question.

    My condo was recently sold in a forclosure auction for $22,500; I owed about $125K on the property. This is a primary residency I was no longer living in because I got married. The bad part is, after my husband and I married, we refinanced the property in both our names. This is a condo I owned solely before getting married (bought in 2002, married and refinanced in 2008). The mortgage was with US Bank. I tried unsuccessfully to short sale and do a deed in leiu of forclosure. Can they come after us for a deficiency judgement or after the new house we own and how can we avoid this or can it be settled? Please Help!!!!

  38. Sandra, Deficiency judgments are pretty rare if a first mortgage was foreclosed. Most likely it will not happen. I would have to know more about your case before giving specific advice. You can set up a phone appointment and I would be happy to explain once I know more. Tom

  39. I just foreclosed on my primary residence in Chicago. It was the 2nd unit in a 3 flat building. I purchase my home 2 1/2 years ago for 315k and it was just sold at auction to the mtg company for 150k. I now live in MN at my other primary residence and make my payments all on time. What is the likely hood that they will come after me for the 1st or 2nd? My 1st is with Citi and my 2nd is with BAC. I really appreciate your expertise.

  40. Rory, Most likely there will be no deficiency judgment or collection agency claims on your first mortgage with Citibank. Unfortunately, it is possible that BAC may pursue a breach of contract (collection agency) claim on the second mortgage. They have 10 years to pursue that claim. You would have to either settle it with them or file bankruptcy if they pursue you. I hope that it all works out. Tom

  41. Thanks for your expertise. I really appeciate your insight and thanks for having this web site. It has been very educational and helpful!

  42. Tom,

    Bought a condo in ’07 for 133K (0 down)in downtown Chicago as my primary residence. Stopped paying my mortgage back in March of 2010. Since then, I’ve been trying to get a short sale to go through with no luck. I am currently unemployed and will be going back to school in January and will not have any income for quite some time.

    Despite my $1,1oo monthly mortgage delinquency, I have continued to pay my $336 monthly assessment payment in hopes of a short sale. Now, it looks unlikely that a short sale will go through.

    I am moving out of the place and would prefer to not pay the $336 every month. Should I try to do a Deed in Lieu of Foreclosure (to try and get rid of the place once and for all) or should I continue to make the $336 payment and wait for it to get foreclosed on? In most Deed in Lieu’s, will I be on the hook for the 10 months of mortgage pmts. not paid. Any advice is greatly apprecciated.

  43. Ken, You can certainly try a deed in lieu, but I still find that lenders will not accept them. The lenders stick with their two tried and true methods: Short sale or foreclosure, and that’s it. If you don’t pay the association dues through the time of the sheriff’s sale, it is likely the association will sue you for the dues. Associations are aggressive in collections. I would suggest continuing to pay the dues. Good luck in a tough situation. Tom

  44. Tom,

    I am currently in the process of my townhome going into foreclosure. I have been paying my monthly assesments even though not making mortgage payments. This month, the association has charged me a “Foreclosure Monitoring fee” equal to the monthly association fee. Can they really institute a fee of this nature? I know that I need to keep paying my association fee while I am occupying the residence, and I have no problem doing so, but this seems wrong.

    Side question, I know that a deficiency judgment could be discharged with a chapter 7, however, if I make more that the allowed amount for a chapter 7 (already spoke to a bankruptcy lawyer), what other options would I have if a deficiency judgment was levied against me? (first mortgage, primary residence). WOuld the extra debt now qualify me for a Chapter 7? Thank you very much for your help!

  45. Brett,

    I have not seen a “foreclosure monitoring fee” so high. That’s ridiculous, especially since a foreclosure can be monitored over the court web site for free. It is very hard to fight and win against associations, though, and very costly.

    If you don’t qualify for a chapter 7, you could try to “surrender” the property in a chapter 13 and that would wipe out the deficiency judgment.

    Best of luck in a tough situation.


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