A common question that I am asked by foreclosure defense clients is whether they will face a money judgment after the foreclosure case is concluded. The answer to that question is probably, but not necessarily. Read on to try to ascertain whether you will owe money after the foreclosure.
Basics of deficiency judgments.
A common misunderstanding among Illinois homeowners is that their liability for a mortgage is limited to losing the house. That is not usually true. Your traditional mortgage has two components: (1) a promissory note by which you promise to repay the money loaned to you by the bank, and (2) a mortgage permitting the bank to foreclose your house if you fail to make your payments.
If your house is sold at a foreclosure sale, it might sell for 80-cents on the dollar of what it is worth today. So, if the house you purchased for $250,000 in 2005 is worth $150,000 today, then you can expect the house to sell at the foreclosure sale for less than $150,000 and probably around $120,000. The bank will apply the proceeds of the foreclosure sale (the $120,000 the purchaser pays at the foreclosure sale) to the loan balance. If you owe more than the money paid at the foreclosure sale, then the bank will obtain a personal judgment against you for the balance. This is called a “deficiency judgment” because it represents the deficiency between what you owe and what the house sold for.
Not everyone receives a deficiency judgment.
If you filed bankruptcy after you took out the mortgage loan, and if you received a discharge in your bankruptcy, and if you did not “reaffirm” the mortgage loan in the bankruptcy case, then your personal liability for the deficiency (if any) has been discharged. You should speak with the attorney that assisted you with your bankruptcy to confirm that this is correct.
Also, sometimes banks do not seek deficiency judgments from homeowners. There is no rhyme or reason to whether or not the bank will seek to obtain a personal judgment against you. If you are lucky enough that the bank did not obtain a judgment against you at the end of your foreclosure case, congratulations.
Even if the bank did receive a personal judgment against you for the deficiency in your foreclosure case, there is also the possibility that the bank will not attempt to collect it from you. Again, there is no clear rhyme or reason as to whether the bank will seek to collect against you. You could get lucky and the bank will never try to collect. However, because there is a judgment against you for a significant amount of money, your credit score will likely be ruined until you pay the judgment off or file bankruptcy to discharge the judgment debt.
Be proactive about your deficiency judgment.
All judgments in Illinois accrue interest at the rate of 9% per year (see 735 ILCS 5/2-1303). 9% per year adds up quickly. If the bank sits on a $100,000 judgment for five years, you would owe $145,000 at that time. If the bank sits on it for ten years, you would owe $190,000. A mid-sized judgment can become a very large judgment in only a few years.
Because of the incredible rate that judgment debts accrue interest, you should think about resolving this sooner rather than later. Bankruptcy is an option for many. Attempting to negotiate with the bank to take less money is also an option. Sticking your head in the sand like an ostrich and hoping that the problem goes away is not an option.
I help debtors with all types of debt defend attempts to collect and to negotiate a reasonable payment of that debt. Although I cannot guarantee that my efforts will succeed (because the court case conclusively proved that you owe the money), I have had success in assisting debtors deal with problem judgments. Give me a call at 815-317-5193 to discuss your options. There is no obligation or fee for the first time we talk.