What is a Deficiency Judgment?
A deficiency judgment can be ordered by a court if a lender wants to pursue the balance of your mortgage loan after your property has been foreclosed. The sale proceeds from your foreclosed property are supposed to go towards paying off your debt and other fees from your collection. However, if your property sells for an amount that isn’t enough to cover your debt, you will still owe money and the court can issue a deficiency judgment that makes you liable for the balance.
How Does a Deficiency Judgment Work?
For example, let’s say the debt owed is $300,000, but your home only sells for $200,000. The deficiency is then $100,000. In Illinois, foreclosures proceedings are judicial, which means they are administered through the state court system. The lender can file a lawsuit against the borrower and obtain a judgement: either an in personam deficiency judgment or an in rem deficiency judgment.
If you are given a deficiency order by the court, you are legally obligated to payback the lender. If you don’t pay your lender, they can collect the remaining debt through the following means:
- Wage Garnishment: A portion of your paycheck is taken until your mortgage debt is repaid
- Levying Accounts: Cash can be taken from your bank accounts to reduce your outstanding mortgage debt
- Property Lien: Your lender will be given legal interest in items you own
In the United States, 1 in every 2,043 homeowners falls behind on their mortgage loan payments and loses their home through foreclosure. While losing your home is a stressful ordeal, the nightmare can continue if the foreclosure sale price is less than the amount remaining on your mortgage—known as a “deficiency.”
Deficiency Judgment Laws
In Personam Deficiency Judgment
An in personam deficiency judgment allows the lender to collect the deficiency amount from the borrower by garnishing wages, collecting from a bank account or taking non-exempt assets, such as valuable collections, family heirlooms and investments. The only way to get out of an in personam deficiency is to file for bankruptcy. Chapter 7 bankruptcy will discharge the judgment completely, while Chapter 13 may require you to repay part of the outstanding debt.
In Rem Deficiency Judgment
An in rem deficiency judgment is a judgment against the property itself. It’s usually entered as part of the judicial foreclosure process and comes into play if the borrower redeems the property. Redemption occurs when the homeowner reclaims the property by paying the amount owed, as well as certain additional costs and interests. If the borrower redeems, the in rem deficiency judgment preserves the mortgage lender’s right to a lien on the property for the remaining deficiency balance. In Illinois, the redemption period for residential mortgages is 7 months after the date of complaint, or 3 months after the judgment is served, whichever is later.
Contact Atlas Law Center Today to Avoid a Deficiency Judgment
If somebody is trying to collect on a deficiency and you are facing foreclosure, speak to one of our Chicago consumer lawyers at Atlas Law Center immediately. It may be possible to fight the collection efforts or limit how much can be collected, especially if a creditor takes a default judgment against you and you were unaware of the deficiency case. You must act quickly though.
Contact us online or by telephone at 331-321-4748 to speak with an attorney.