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As discouraging it is to lose your place to foreclosure, borrowers may still be liable for the deficiency amount. It’s the difference of what’s owed on the house loan and what the bank could sell for at an auction. “Deficiency judgments” can come after ex-borrowers at any unexpected time-frame after they have lost their house.It can be an unpleasant shock for borrowers who have sold their home via a short sale arrangement where the bank approved selling the property for an amount less than the mortgage debt.Vanessa Corey who made a short-sale on her Fredericksburg, VA home in April of 2008 is a real life example. After building her house in 2004, unforeseen setbacks which led to a bitter divorce coupled with the economic housing crisis forced her to sell the house through a short-sale arrangement.As a real estate agent, she thought that the deficiency amount was negotiated away. In other words, she thought that the difference was forgiven by the bank. Last November, she received a letter from her lawyer indicating that she owed her lender $65,000. She was forced into bankruptcy as she had no means of settling the payment.Numerous banks choose not to make statement about the subject of ‘deficiency judgments’. Corey’s bank, BT&T confessed that they were going after more borrowers with deficiencies.How Do You Avoid A Deficiency Judgment? It depends on which state the homeowner resides in. Other things include if the borrower has a second mortgage or other liens. It can definitely hurt homeowners if they disregarded the issue altogether.Mr. Zaretsky, a property lawyer in Palm Beach, Fla said that once your bank has judgment on you, they can pursue you regardless of where you reside. They can demand for your financial records and have your salary taken away or have you jailed if you ignored any contact.Financial firms can legally impose deficiency judgments in more than thirty states with the inclusion Fla, NY and TX states.In some states such as California and Arizona, they are both considered ‘non-recourse’ or prohibit ‘deficiency judgments’. The other remaining 10 states that prohibit deficiency judgments are Alaska, Iowa, Montana, North Dakota, Oregon, Pennsylvania, South Carolina, Washington and Wisconsin.As financial institutions are likely to agree in forgiving the deficiency amount, many ex-homeowners do not know that they are needed to opt for a release. This can be done by having your legal representative demand a release from your financial lender.According to Zaretsky, people should not have a false sense of security thinking that a deficiency judgment will not come back and haunt them. He expects many of the deficiency judgments will be filed over the next few years as many of these accounts were sold at discounts to numerous collection agencies and third parties. These organizations would not have bought these accounts if they were not planning on recouping their initial investments.Financial institutions or debt collection companies may sit and wait for borrowers to cure themselves from their financial woes before filing for a judgment. Take for instance in Florida state, financial institutions and debt collection companies can wait up to five years to file. Once judgment is received, the organizations will be granted a time span of up to 2 decades to collect the debt with interest.Lenders and collection agencies can come after borrowers regardless of how small the debt. Case in point, Richard Varno and his wife short-sold their Nashville house in 2004 when he became unemployed. Four years later in 2008, the second lien holder was after him for $25,000. He argued by informing them that they had released the title and he was no longer liable.Unluckily, this is not true. Even if the title was released, it does not make the debt disappear. Since state laws are not uniform from state-to-state, normally, a loan agreement is divided into two sections. The 1st section is the collateral or the pledging of the property. The 2nd section is the agreement to repay the mortgage loan.Financial institutions may drop the liens to help allow a short-sale. This however does mean that they will terminate the original contractual agreement for the borrower to repay the loan as stated in the promissory notes. After selling the house, the secured debt can evolve into an unsecured debt.Zaretsky pointed out to one of his customers who went over the mountain when he got a short-sale. He blindly signed away all the papers that his loan agent had given him with the inclusion of a document that made him still legally responsible for the debt.He was unaware that the financial institution could take that document and transform it into a deficiency judgment through the legal system.Banks are not always on your side. Zaretsky mentioned of another customer who was wealthy enough to pay off the difference but the lender didn’t care as they had the power to target you for the debt in the foreseeable future.Larry Tolchinsky, a Florida real estate attorney said, lenders can occasionally come after borrowers who strategically default (or walk away) if they have other remaining assets.Lenders will investigate if this was a true strategic default by pulling out your credit report. If they discover that you were not behind in all your payments and not in financial distress, they may pursue you.If in doubt, it is advisable to seek legal advice to ensure that your short-sale or deed in lieu agreement does not contain any deficiencies therefore allowing your lender to pursue you in the future. To alleviate any risks, it is important for your attorney or counselor to negotiate the deficiency out of the short-sale or deed in lieu contract.Get the latest news reports and tools on how to avoid mortgage foreclosure. Download the Free Podcast about How To Avoid Deficiency Judgments After A Short-Sale for your own use, blog or website.

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