Mortgage Loan Deficiency Debt & How to Avoid Collections
Behind on your mortgage with a looming foreclosure? You have options!Schedule a Consultation
What is Loan Deficiency Debt?
In years past, if you were not in the position to maintain payments on your home and were forced to surrender it back to the bank in a foreclosure, short sale or deed in lieu of foreclosure that was the end of the story. Unfortunately, with the dropping real estate values, the bank’s ability to recuperate what they are owed is severely diminished and they are now pursuing borrowers for the unpaid balance (i.e., the difference between the total amount owed on the mortgage and the amount the property sold for at the foreclosure sale).
If ignored, this debt can swell, negatively impact your credit and eventually go into collection with an eventual judgment and garnishment where the creditor can take your bank account balance or up to 25% of your pay until the debt is satisfied check. Sound alarming? Fortunately there are solutions.
Call our office at 866-261-8282 for a free consultation on how to best resolve your mortgage situation or loan deficiency debt. One of our qualified attorneys will:
- Answer all of your questions regarding debt resolution, mortgage foreclosure and loan deficiency debt
- Discuss the current status of your mortgage loan and your intentions with the home
- Gather information regarding your other debts and long terms financial goals
- Provide recommendations to resolve the mortgage and other debts while minimizing credit damage
We have seven convenient office locations in: Detroit, Ann Arbor, Dearborn, Southfield, Flint, Lansing or Warren, Michigan. We offer same day phone or office consultations and same day legal protection if needed.
What Happen When the Bank Takes Back the Property?
Increased home foreclosures have created a virtual meltdown in real estate values. According to the Detroit News: “home prices dropped 34% during the past decade and recently hit their lowest point since the summer of 1994.” The effects of plummeting home values is far reaching and devastating. Many people are actually voluntarily walking away because they don’t want to pay on a home that is not worth what they owe. In times past, homeowners could walk without significant monetary repercussions. What changed?
Due to severely depressed home values throughout Michigan, lenders are often not bidding what is owed on the property at the foreclosure sale. Instead, the bank enters bids for the current market value of the home, or sometimes even less. Under Michigan law, the borrower is responsible for the shortfall between what is owed and what the home actually sold for at the foreclosure sale. According to RealtyTrac Inc., U.S. homes in the process of foreclosure sold at an average 27-36% discount over non-foreclosure homes during the last 4 quarters. Based on this statistic, this figure could be a hefty loan deficiency liability thrown on the back of the borrower.
Not only can this debt be significant but it is persistent. Lenders have up to six years to sue for the debt under Michigan law. If they obtain a judgment, they can pursue the borrower for an additional ten years. If they still haven’t collected, they can renew the judgment for another decade…this process can repeat indefinitely!
During that time, interest can build on the debt at the default rate stated in the original mortgage. That’s usually 4 -5% above the original mortgage rate. So a deficiency on even a low 6% loan would be charged 10-11% interest, doubling the cost of the debt in as little as 6.5 years. (1)
Another emerging trend is for mortgage lenders to sell their “deficiencies” to debt collectors to make up for their loan losses. This unleashes trained collection professionals whose sole job is to recoup the debt. With a judgment, they can pursue a garnishment of your bank account, tax refund or wages. Many borrowers feel that if they don’t hear anything, the coast is clear. But collectors can wait years to pursue active collections or legal action, long after the borrowers have rebuilt their financial lives and have assets that can be pursued for collection.
Avoid Loan Deficiency Debt by Reducing Debt and Keeping Your Home
You may have felt that your situation was hopeless and have all but thrown in the towel. There may be a better option than letting your home fall into foreclosure. If your second mortgage, home equity loan, personal loans and credit card debt or medical bills are depleting your budget to the point where you can no longer manage all of your debts, we have a solution. Chapter 13 debt consolidation provides immediate and significant debt relief.
Through the 36 -60 month repayment plan we can:
- Stop home foreclosure and provide reasonable repayment terms paid back at 0% interest
- Remove second mortgage, home equity loan or other liens to rebalance your monthly payment based on current market conditions
- Opportunity to pursue loan modification during the plan.
- Reduce balance owed on rental property(s)
- Consolidate and reduce credit card bill and medical debts at 0% interest
- Stop vehicle repossession and potentially reduce your payment
- Improve credit score throughout program by restoring balanced budget and timely payment to creditors and improved debt-to-income ratio
- Reduce debt to create a balanced budget and legally eliminate the balance of unpaid debt at the completion of the program
To see a practical example of how Chapter 13 reorganization plan can balance a budget and provide significant debt relief, click here to view a sample budget. Since each person’s circumstances vary, it is best to set up a free initial consultation with one of our attorneys to see how we can improve your finances.
Get Debt Resolution
Sometimes losing your home is unavoidable. A change in circumstances not only makes paying the monthly mortgage unworkable, but paying on a deficiency from a previous foreclosure in addition to new living expenses impossible!
We encourage our clients to get resolution on the debt instead of letting it grow further and negatively impacting your credit and life. It is possible to get total debt resolution through filing a Chapter 7 bankruptcy. Through Chapter 7 we can:
- Fully eliminate any further liability with the foreclosed home and mortgage companies
- Wipe out all unsecured debts such as credit card bills, medical bills, personal loans, other loan deficiencies, judgments, etc. with a full court discharge with 4 -5 months.
- Begin the first step towards improving your credit by improving your debt-to-income ratio.
- Immediately stop all creditor calls, garnishments and collection efforts.
Acclaim Legal Services Can Help
Don’t delay getting resolution for your mortgage issue. We may be able to reorganize your debts to allow you to keep your home and avoid foreclosure and resulting loan deficiency debt. Or we can help you put the situation behind you by wiping the slate clean with Chapter 7 debt elimination. Call us today for a free consultation. Our licensed attorneys will sit down with you and discuss all of your available options. When it comes to a looming foreclosure, time is not on your side. We can bring swift resolution and help restore financial peace of mind. Please call us toll free at 866-261-8282 or click here to schedule a consultation right now.
Footnote (1): Source Detnews.com, 2/2011
We offer free in-office or phone consultations to review your personal circumstances, analyze your situation and advise you on the best course of action. We specialize in bankruptcy law, debt resolution, foreclosure prevention and credit repair. We have offices in Detroit, Southfield, Dearborn, Flint, Ann Arbor, Lansing and Warren, Michigan. Please call us toll free at 866-261-8282 or click here to schedule a consultation right now.
I would like to take a moment and recognize our attorney and his team. They were very accommodating and courteous throughout our entire Chapter 13 process. When we had a question we would email them or call and they would promptly get back to us with an answer.…
I would like to extend a special thank you to your firm, especially Cindy Millns and our attorney – they were both very helpful in this whole process very reassuring. I would recommend your firm to anyone that needs assistance!
Working with my Attorney was a very comfortable experience. I was scared going into the Chapter 7 bankruptcy process and didn’t know what to do. She walked me through the whole thing step by step. I would recommend her to anyone. Not only was I going through…
My name is Patty Simmons and would like to say thank you to the team at Acclaim Legal Services. Myself and my husband filed Chapter 13 in 2009. It was a bumpy road for us initially, but our Attorney and Cindy Millns helped us through the process. After five years, we are finally done and could not…