It shouldn’t surprise you to learn that many of the people I help have had lenders foreclose on their homes. Some of them have simply walked away from the mortgage, a calculated decision to stop paying their mortgage because they owe so much more than their home is worth.
Others have gotten their lenders to agree to allow them to do a short sale, which means they will sell the house for less than what they owe the lender.
Make no mistake, however, that the lender is going to ignore their loss, whether it was a foreclosure or a short sale. In Colorado and 39 other states, they can come after you for the deficiency. While some lenders have laid back on enforcing that right, they seem to be coming back with a vengeance. I listened to a story on National Public Radio this weekend about lenders in Utah pursuing former homeowners for the deficiency. In some cases, it’s not even the original lenders going after them, but companies who have bought the right to collect the deficiencies.
These deficiencies can be tens of thousands of dollars and can cripple a household budget. Bankruptcy will eliminate a deficiency from a short sale or foreclosure and put the nightmare or losing your home behind you. You don’t need to wait until the bank has sold your home in a foreclosure sale to enjoy the protection of bankruptcy, either. As soon as you get your notice of foreclosure sale, you should consider talking to a bankruptcy attorney.
You can listen to the NPR story here.