Who Pays The Remaining Balance After A Foreclosure?

Articles Tagged with: Lenders Rights Alabama

Who Pays the Remaining Balance After a Foreclosure?

For homeowners, foreclosure is a way out of debt and a path to freedom. For lenders, foreclosure is a huge financial hit and major stressor. When a homeowner forecloses on his or her home, lenders will try everything in their power to recover the loss. This includes selling the home via a short sale. Depending on the winning bid amount, the lender may or may not receive a full reimbursement of its losses. If it does not, it has a few other options, including collecting on the private mortgage insurance (PMI) or other mortgage insurance or pursuing a deficiency judgment against the homeowner.

At Cloud Willis & Ellis, our foreclosure attorneys understand how difficult it can be for lenders to collect money that is owed to them after a foreclosure. However, we also understand how important it is for them to do so. If you stand to lose a significant amount of money on a foreclosure, reach out to our lawyers today to discuss your options.

Programs That Protect Lenders’ Interests

Mortgage lenders can invest in insurance on homes to protect themselves in the event of a default. The catch, however, is that a lender must have more than 80 percent of a home’s value in order for the home to be insured. PMI does not cover hazards or losses. Rather, it reimburses lenders for losses associated with delinquency. The Veterans Administration also offers insurance to lenders in the form of a guarantee. If a buyer defaults on his or her mortgage and if the home is not sold via a foreclosure sale, the VA will take possession of it and reimburse the lender for both the property and any losses accrued as a result of the foreclosure. The FHA also offers this same guarantee.

Deficiency Judgements Against the Homeowner

In accordance with Alabama law, lenders may pursue deficiency judgements against default homeowners. Many states do not provide this type of protection, so it is fortunate for Alabama lenders that the state does. Unfortunately, deficiency judgements are difficult to pursue, and it may result in additional losses to the lender, especially when one’s efforts fail.

If successful, however, lenders can recover the remaining balance on a mortgage after the foreclosure sale. For instance, if a homeowner had $125,000 left on his or her mortgage loan when the home foreclosed, and if the home sold for $75,000 in the foreclosure sale, the lender can pursue the remaining $50,000 from the homeowner.

However, there are a number of factors that a lender must consider before pursuing a deficiency judgement, as some may impede their ability to collect on a judgement. Again, if a lender is not careful, he or she may end up losing even more money.

When to Work With a Foreclosure Attorney

You should always work with a foreclosure lawyer before pursuing any action against a homeowner, as there are several laws in place that protect homeowners’ rights. If you make one wrong move, you may lose your ability to collect the remaining balance, or worse, to foreclose on the property at all. The Alabama foreclosure lawyers at Cloud Willis & Ellis can not only advise you or your rights, but we can also save you time and money on the whole foreclosure process. For help collecting what is yours, contact our office today.

How Lenders Can Collect Money Still Owed on Foreclosed Properties

We regularly hear about borrowers’ rights but we rarely ever hear about lenders’ rights. However, lenders are people too, with mouths to feed and families to care for. When a borrower fails to pay back their loan, the loss falls to the lender, who still has to make up for the money in some way. One way they do so is through a deficiency action.

A deficiency action is used by lenders when a homeowner forecloses on their home but when the proceeds from the foreclosure are not enough to cover the cost of the mortgage still owed. The lender must first file a lawsuit; upon winning, they are granted a deficiency judgment, which gives them legal rights to pursue the remainder of their money in one of three ways: wage garnishment, judgment lien, or bank account levy.

If you are a lender and want to know more about your rights as a creditor, reach out to the foreclosure attorneys at Cloud Willis & Ellis. We can help you take the proper steps to efficiently and legally regain the money owed to you.

Wage Garnishment

Wage garnishment is one of the most common ways that creditors go about collecting money from borrowers, so it would make sense that it would be one of the first processes you try. If you know where the borrower works, you can work with their employer to collect wages via their paycheck. However, there are a few things you should keep in mind:

You cannot take more than 25 percent of a person’s disposable earnings (“disposable earnings” being those left after the employer makes the necessary deductions; this is in accordance with federal law);
If the debtor has another garnishment against them, you can only garnish whatever is remaining of that 25 percent (for instance, if the federal government is garnishing 10 percent for child support arrears, you may only garnish 15 percent);
Know that if you pull a second garnishment out on the debtor, state nor federal law will protect them from being fired, and if they are fired, you are out of luck; and
You cannot garnish the wages of those who make $1,000 or less per paycheck.

Judgment Lien

Another and more efficient way in which you can get your money back is via a judgment lien. A judgment lien can be taken out against the nonpayer’s personal property, including any real estate that they own. Once a judgment lien is filed and approved, you have security interest in the property; if the debtor has equity in that property, you may foreclose on it to get your money back. You can file a judgment lien against non-real estate as well. For instance, if the debtor has a significant amount of valuable assets (vehicles, fine art, jewelry, etc.), you can claim a stake in those assets as well.

A judgment lien is more efficient in that it can be completed within a matter of months, does not require you to go through a third party (the debtor’s employer), and is not subject to as many consumers’ rights laws.

Bank Account Levies

Placing a levy on a debtor’s bank account is another efficient way to regain your money, and it is made considerably easier if the borrower ever paid you with a check drawn on that account. As with wage garnishments, you cannot take all of the funds within the account, but if there are significant funds in it, you may be able to reclaim all if not most of your money.

Work With a Alabama Foreclosure Attorney

At Cloud Willis & Ellis, we help lenders recover their money quickly, efficiently, and without violating creditors’ rights. If you still have money owed to you even after a foreclosure sale, contact our foreclosure lawyers today for advice on how to proceed. Give us a call today at 205-322-6060 for immediate assistance.

Resources:

webapps.dol.gov/elaws/elg/garnish.htm#EmplRights

alabamanews.net/2017/05/16/low-income-alabamians-protected-wage-garnishments/

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