By Paul OwersAugust 3, 2012 07:00 AM
Board-certified real estate attorney Gary M. Singer writes about the housing market in this space each Friday. To ask him a question about short sales, mortgages, refinancing, homeowner’s associations or any other residential real estate topic, click here.
Q: I lost my home to foreclosure in 2010 and have moved on with my life and am trying to buy a new home. I just got served a lawsuit on the home equity line of credit that I had on the home that I lost. What is this? – Lisa
A: This is a nightmare that more people are starting to face. When you lost your home two years ago, your line of credit, which is really a second mortgage, was not paid off because there was not enough value in your property to cover it in the foreclosure sale. That loan has sat out there, and now your lender has decided to sue you to recover the money that you borrowed.
A mortgage loan is made up of two components: the promissory note and the mortgage. The note, or credit agreement in your case, is the bank lending you money. The mortgage is the document in which you pledged your home as collateral to the lender to secure repayment of the money. Now the collateral, or your home, is gone, so the mortgage is useless – there is nothing for the bank to take back — but the loan still exists and your lender has the right to sue you to get a judgment against you.
Think of it as your friend lending you $10 to buy a hamburger and fries. Now it’s next Tuesday, and your friend wants her $10 back even though all that remains of your lunch is the lingering memory of it. I encourage you to try to negotiate with your lender to take less than what is owed. Lenders often will take pennies on the dollar to settle this sort of debt.
Q: I am confused as to what defines the deficiency amount in a short sale. If $116,000 is the balance left on a mortgage and a short sale of $120,000 is accepted by the bank, is there still a deficiency? If so, how is it figured? – Henrietta
A: In a short sale, the deficiency refers to the amount remaining owed to your lender after the closing. In your example of a $120,000 sale price, the bank may have received only $106,000 after paying for real estate agents and closing costs, in which case the remaining deficiency would be $10,000. In a foreclosure, the “deficiency” is the amount that is awarded to the lender on the final judgment, which includes not only the remaining principal due to your lender, but also attorneys fees and court costs, interest and the like, minus the actual market value.
The information and materials on this blog are provided for general informational purposes only and are not intended to be legal advice. No attorney-client relationship is formed, nor should any such relationship be implied. Nothing on this blog is intended to substitute for the advice of an attorney, especially an attorney licensed in your jurisdiction.
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