Michigan Foreclosure

Many people make the mistake of thinking that a foreclosure gets them out from under their mortgage problem. Usually this is completely incorrect. In most states, lenders have the ability to obtain a deficiency judgment, which is equal to the total mortgage debt, plus ongoing interest, attorneys' fees, costs and advances (taxes, insurance, etc.). From this is then deducted the amount the lender finally receives for your property after it sells it. The costs of sale are also added to the debt, as is the real estate broker's commission, etc. Foreclosed properties sold by the lenders tend to sell at very low prices, making that difference even greater.

In many states, the process of obtaining a deficiency judgment is straightforward. It would not make business sense for lenders who themsellves are having record losses to fail to try to collect the tens or hundreds of thousands of dollars per borrower in shortfalls on these loans.

While lenders did not used to do thsi, that is because back in the days of appropiate, non-predatory lending, properties were valued realistically and conservatively, and the prices were stable. Then lenders would only lend 80 per cent of that number, of if they lent more, there would be private mortgage insurance staniding behind the difference, so it would virtually never happen that they would not be able to fully liquidate the loan through foreclosure - or better.

Of course, that is all different now, since due to the improper lending and underwriting practicces of the past 5 years, most borrowers who borrowed in that time frame are under water even before foreclosure starts. Once the loan goes into foreclosure and all the costs, fees and advances get added to the loan amount, tje tpta; amount due becomes much higherr, and the prices the properties finally sell for are a huge discount below what they are worth, making the gap, and therefore the deficiency, even larger.

Florida law gives lenders 5 years to obtain their deficiency judgment, so even if nothing hhappens right away, that does not mean it will not. The statute of limitations for deficiency judtment varies from state to state.

Lenders cannot even begin the process of obtaining the deficiency judgment until the foreclosed house sells, since that price is necessary to determine the amount of their deficiency.

There are many people who allowed lenders to foreclose, and now think they are all done. They will be in for a rude surprise. Aside from the damage done to credit, they often find thedmselves with a large judgment against them. In some states, the creditor can then levy on their bank accounts, garnish their wages, and use other very unpleasant tactics.

The lender might agree to release the property from the lien of the mortgage so that you can sell it for a lower price, that is called a short sale. Sometimes lenders will agree to do that.

Many people think that a short sale gets them out from under the difference between the total debt and the amount paid to the lender when the property sells. This is NOT NECESSARILY TRUE, and many people who have done this may be in for an upleasant surprise. Unless the lender specifically agrees that the short sale proceeds represent FULL SATISFACTION OF THE DEBT, then you still owe the balance. You can expect that, down the road, the lender or some other entity that buys the debt from the lender will sue you for the difference. Exactly how that works depends on the law of your state.

You can also try contacting your lender to see if it will agree to a short sale or deed in lieu of foreclosure. These are not perfect solutions either. The best option of all might be to try to rent your condo, and then to keep making your payments until the economy improves.

My suggestion of renting your condo and trying to hold on until the situation improves is based upon the fact that you are current and have income. That would not be the best solution for everyone with a mortgage problem.

Each situation and each case is different. In order to make the best decision, it is necessary to consult with an attorney in your state who really understands foreclosure defense and mortgage law in your state.

Whenever I meet with new potential clients, I listen in detail to the entire story of how the loan came into existence, what promises and misrepresentations were made to them, what happened since the loan was originated, and what their current circumstances and goals are. When they leave, they have all their questions answered and have a clear picture of their situation and their options.

The National Association of Consumer Advocates (NACA) is a non-profit consumer advocacy organization. NACA maintains a web site at www.naca.net where it lists geographically consumer law attorneys all over the US. If you don't already have an attorney, please look there for someone in your area who specializes in consumer foreclosure defense and mortage law to review the details with you and advise you.