Tuesday, October 18, 2011

Should I file for bankruptcy on a deficiency judgment? By Brooklyn Bankruptcy Attorney. 1-718-864-2011

Should I file for bankruptcy if my house was foreclosed on and there is a deficiency judgment against me in New York City? 1-718-864-2011

The answer to this question is maybe. The bank, even after a foreclosure sale occurs in New York State has to go through a certain procedure before obtaining a deficiency judgment against you.  Thus it might be wise to wait it out and see if the bank is actually going to pursue the money owed to it after your home was sold.

If you were unable to pay your mortgage due to job loss, Wall Street fluctuations or rise in interest rates and a foreclosure action takes away your home then the bank may be able collect on a deficiency judgment against you.

A deficiency judgment is a money judgment against a borrower whose home at a mortgage foreclosure sale did not sell for enough to pay the underlying loan on the property. Thus if the total amount due on your mortgage is $300,000 but your house only sells for $150,000 then a lender can seek a judgment against you for $150,000.

To reiterate a Defendant in a foreclosure action, if found to be liable for payment on a debt secured by a mortgage, and this Defendant has appeared and be personally served with the Summons, the Court has the ability to enter a  Judgment against this defendant on the debt remaining unsatisfied after a sale of the mortgaged property.

After the sale, the lender, within 90 days of the sale must make a motion to confirm the sale and simultaneously, after   Notice of Motion is given to the purchaser or his or her attorney, may also make a motion in the action for leave to confirm a deficiency judgment.  When this motion is heard, the court will determine the deficiency judgment amount by ascertaining the  fair market value of the property and deducting the total mortgage amount owed plus the amount owing on all prior liens and encumbrances with interest, plus costs and  disbursements  of  the  action  including  the  referee's  fee and disbursements. If no motion for deficiency judgment is made in the above referenced time period, then the lender will be prevented from collecting on the judgment.

Furthermore there is a difference between a deficiency judgment and a short sale. A short sale occurs when the lender, after negotiation between the lender and the property owner, takes the property back from the property owner as full payment of the loan.  Thus the loan is wiped out.  In some cases the owner may get an additional cash payment from the bank as an incentive to close the deal.

If the lender has followed proper procdeduresand haqs obtained a deficiency judgment then it would be a good idea to file for a bankruptcy. If you file for bankruptcy the bank, unless the bank has a legal basis for objecting to the discharge and you do not have any assets in the property of the bankruptcy estate, wlll not be able to collect on the debt.  A Chapter 7 bankruptcy will wipe out all of this debt and sihce the property has been sold, the debt is unsecured.

Please see my previous blogs on bankruptcy filings for more information.

If you have any further questions about deficiency judgments, bankruptcies or short sales, please contact me, George M. Gilmer, Esq., your Brooklyn, New York City Bankruptcy Lawyer for a free phone consultation.