When counseling a home owner, I remember telling them that the bank could come after them for a deficiency judgment. They would ask, how likely that would be and I’d say I’ve never seen it or heard it. Sounded like an idle threat.
Here’s the scenario:
Home Owner owes $500,000
Home is worth: $400,000
The home owner has options.
- Attempt a short sale for $400,000 and get a short sale expert to take care of it and if all goes well, the $100,000 is forgiven.
- Let the bank take the home, take the home to auction, buy it back and resell it several months later for $350,000. Afterall, a foreclosure is going to get them less.
Both of these things take time, but in the instance of a foreclosure, if the home owner manages to make a clean break and get back on their feet, guess who might be standing at the door with their hand out?
That’s right, the bank.
This is becoming more and more common as the banks scramble to recoup the money. Garnished wages is just one way that can happen.
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