Sunday, February 7, 2010

Deficiency Judgments

Deficiency Judgments. A possible trap door when buying a home. Let's explore when this can become an issue. The article here, tells us if a deficiency judgment is permitted in Maryland. FYI-Yes it is.

Whats does this all mean? A deficiency judgment occurs when a borrower owes the lender the difference between what the home sold for at auction and the original amt owed. For example: The original amt. owed on the loan was $200,000, and the home sold for $150,000 at auction. The difference of $50,000 could be saught in a lawsuit, as a "deficiency judgment," against the borrower. Fair? Absolutely not. Imagine, losing your home to foreclosure, then being sued by the bank for a "deficiency." Unbelievably CRUEL. If an individual couldn't afford to keep their home.....hence the foreclosure, how does a bank realistically think the borrower can pay an additional judgment??? From what money?? If someone cannot "modify" their loan, or commit to a "workout" agreement of some sort, its HIGHLY unlikely they can pay a deficiency judgment. Do the banks care?? HELL NO. They want to DRAIN all they can from whomever they can.

What are some ways to manage your money better and possibly avoid this scenario?
  • Develop a savings plan for emergencies. Set aside whatever is feasible based on your current income and expenses, say $50 per week. That's $200 per month, and about $2,400 a year that may be used to "bail you out," if the need arises.
  • Commit to paying a little more each payment on your mortgage, considering you're not subject to a "prepayment penalty." This may make talks go more smoothly should a hardship arise. If the lender sees you're "ahead of schedule" on your payments, this may allow you more time to catch up, if you find yourself falling behind.
  • Whenever you have a "windfall" of money, (i.e. tax refund, bonuses, etc) set aside 1/3 to half for unexpected emergencies. Increase this windfall by setting aside regular savings in addition to this amout, increasing your cushion.

Another site with useful info on the topic is:

Hope this blog helped shed some light on an otherwise "dark" topic. Financial difficulties can devastate anyone. With some preparation, we can weather the storm a lot easier. Happy reading. Thanks for viewing my blog.

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