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Foreclosure on Investment Properties/Deficiency Judgment

Atlanta, GA |

I have 3 investment properties that I can not keep tenants in and I am thinking about allowing these homes to go into foreclosure. I can just barely make the payments. I can pay all other bills. I know that my credit will be impaired for a while if I foreclose on 3 properties and that I will have to pay taxes on the potion of the loan that is forgiven.

Will the lender seek a deficiency judgment?

Is there anything else that the lender can do that I have not thought about?

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Attorney answers 3


While there is no way to say for certain what the lender will do, the odds of them pursuing a deficiency judgment are increasing. Here in Florida, they are starting to include a request for deficiency judgment right in their complaint for foreclosure. The greater the shortfall between the total debt and what they realize on the collateral, the greater the odds, in my opinion. Finacial services companies are losing a lot of money these days. If there is a large deficiency, I would think they would go after it.

The issue of your being obligated to pay income tax on the forgiven portion of a debt is only applicable if they forgive the balance.

For the record, it is the bank who forecloses on you, not the other way around.

If you qualify for Chapter 7 bankruptcy, you might be able to avoid liability for deficiency judgment in bankruptcy. You should speak to a local attorney who is knowledgable in bankruptcy law.


In my opinion, it is safer to assume that the deficiency judgment will eventually be pursued. However, it probably will not be by the lender, but by a collection law firm or a collection company. I believe that a company or law firm is going to emerge that specializes in buying deficiency judgments for pennies on the dollar, or on contingency, and then will start pursing these situations.

I have seen a couple of companies that have bought small seconds that were wiped out at foreclosure sale, which actively pursue settlements. They put pressure on by getting the judgment and then threating to garnish your wages, but will settle for like 10% of the debt.

You should consult with a bankruptcy attorney to learn now if you qualify for assistance under either chapter 7 or 13. It doesn't mean that you have to file now, but you certainly want to know your present and future options now.


You do not say where the property is located. Assuming it is Georgia, Georgia is a non-judicial foreclosure state and the lender may foreclose and then seek a deficiency on the remaining balance. Technically, the lender does not even have to foreclose, it can seek judgment on the note. Assuming also that you own the property in your individual name and do not hold title in a corporation, there are situations where you may be able to negotiate a short sale, a deed-in-lieu transaction or other workout. I would strongly suggest you consult with legal counsel regarding your specific situation to find out the specific issues, concerns and possibilities for your situation.

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