FAQ: If I Am Foreclosed, Will I Owe the Bank Any Money For My Mortgage Loan?

Question:   If I am foreclosed, will I owe the bank any money from my mortgage loan?

Answer:  After a foreclosure, the bank is entitled to collect any deficiency judgment owed following the foreclosure sale.  The deficiency judgment is the difference between the amount you owe on the loan and the amount of money the home is sold for at the foreclosure sale.  For example, if you owe $400,000 on the mortgage loan and the home sells for $300,000, the deficiency judgment would be $100,000.  This is the amount that the lender could attempt to collect against you personally in a lawsuit.

A homeowner’s personal liability on the mortgage loan can be eliminated through a bankruptcy.  If you filed for bankruptcy and received a discharge on your mortgage loan, the lender cannot collect this debt against you (it can, however, still foreclose the home).

The deadline for a bank to file a deficiency judgment case on a mortgage loan is two years after the foreclosure sale (“Statute of Limitations”).  If the bank does not file in these two years, they lose their right to collect this debt.

Banks rarely attempt to collect deficiency judgments; most of the time, the homeowner will not have any assets that make such a lawsuit worthwhile.  Nonetheless, a homeowner should always ask the bank to waive the deficiency judgment against them in any settlement for a foreclosure matter.

There are several tax consequences relating to deficiency judgments.  Homeowners should always consult a tax expert before making any decisions related to these matters.