This morning, I read with interest a story in the Wall St. Journal called “House is Gone But the Debt Lives On.” When I finished reading the story, my first thought was…this is going to freak out a lot of people unnecessarily.
(Aside: I read this on my Ipad and I highly recommend the WSJ tablet edition. It’s beautifully designed and very easy to read. It has a monthly fee, but it’s cheaper than the print edition).
The story covers how there has been an increase in deficiency judgments entered this year in a Florida community. A deficiency judgment is a court judgment entered against the owner after a foreclosure for the difference between the mortgage balance and the market value of the property.
The community is Lehigh Acres, an overbuilt central Florida boom town. It’s so bad down there that they could rename it “Deficiency Judgment Acres.” In the first 7 months of 2011, there have been 42 deficiency judgments entered against foreclosed owners in this subdivision alone for more than $7 million. Most of these judgments will be uncollectible, I would guess.
Here are the main points of the story:
1. Deficiency judgments are increasing in Florida.
2. Deficiency judgments elsewhere are still rare, unless the foreclosing bank is small bank or a credit union.
3. Down the line, debt collectors may buy foreclosed mortgages for two cents on the dollar and then may try to collect against foreclosed owners.
How does this apply to Illinois? Deficiency judgments are still rare in Cook County, so there is really no comparison to what is happening in Lehigh Acres.
It is always possible that foreclosed first mortgage debt could be dumped to debt collectors. I haven’t seen that happen yet, but you never know.