Stopping Mortgage Payments May Lead To Foreclosure And Eventually A Deficiency Suit

Loss of home values and thus equity has put some homeowners in a strange position. They can't sell their house but they also don't want to continue paying for something that has lost its value. Foreclosure in Chicago has become so common that some people simply consider it as an option to get out of their mortgage. Despite the significant detriment it can have on your credit score some people aren't trying as hard to stop foreclosure from happening. In a recent Chicago Tribune column, Ilyce Glink talks about what can happen if you stop paying your mortgage.

It is a common misconception that if you simply stop paying your mortgage your lender will foreclose and you will be free of the debt. In Glink's column she explains that after a lender forecloses they will sell the home. If the sale amount isn't enough to cover the debts owed to them they have the right to sue the debtor for the remaining amount. This is called a deficiency judgment and it is allowed in most states. Some states restrict this on primary residences but anyone who forecloses on a vacation home is likely to be pursued for the deficiency.

Before foreclosure happens there are other bills that will come due. This includes insurance on the home as well as taxes. According to Glink your lender may opt to make those payments for you during the foreclosure process but this does not mean that they will not try to collect those costs later.

Foreclosure will decrease your credit score approximately 200 points. This is further aggravated by a deficiency suit. The lender may pursue you for years to come and they also have the right to sell your debt to a collection agency that will be committed to collecting the debt from you even if it takes years. A collection agency will likely be very pushy while trying to collect the debts.

Some homeowners also believe that deed-in-lieu of foreclosure is an easy escape from a mortgage they no longer want. This solution is beneficial for the lender because they can avoid the high costs of going through the foreclosure process. You or your foreclosure attorney in Chicago would approach your lender and ask them to approve deed-in-lieu of foreclosure. Then they take back ownership of the home without going to court to do so.

Even if you give the home to the back voluntarily in this way you are still likely to be held responsible for the deficiency if the bank cannot sell the home for the debt that is owed to them.

It is recommended that borrowers seeking deed-in-lieu of foreclosure try to negotiate an agreement that they will not be pursued for the deficiency after the lender sells the home. It is important to remember that this is not a guarantee and your lender has the opportunity to refuse deed-in-lieu of foreclosure if it not in their best interests.

Chang and Carlin
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