After mortgage foreclosure they can still come after you
I hear from people who are very very frustrated and they will often say that they are simply going to walk away and let their house go to foreclosure sale.
This is not the best course.
I am always urging people to deal with foreclosure situations so that they don't go through to the foreclosure sale. The reason for this is that in many cases your lenders can pursue you after the sale and make life difficult for a long time.
There are several scenarios where this can happen.
First, if you have two mortgages. The first mortgage may be doing the foreclosure. Once the house goes to auction, the second mortgage gets wiped out. But the law is generally that the second mortgage holder can still sue you for breach of contract. They will probably win a quick summary judgment. And now you have a judgment against you that can drag you into bankruptcy.
Even in bankruptcy, you may have to pay this judgment over 3, 4 or 5 years, or at least part of it. Because many people don't qualify for a chapter 7 discharge so they are stuck in chapter 13 which requires years of court supervised repayments. You may be eligible for a chapter 7 though…if your income falls below the median income of your state or your debts exceed a certain threshold.
But you don't want to have to go there, right?
The second scenario where you could face more jeopardy after the foreclosure auction is in states that use a mortgage process rather than deed of trust process. A mortgage usually requires judicial foreclosure. A state like Illinois comes to mind. The lender can come after you in many instances for their financial losses and after the foreclosure sale, they don't have to do anything more. They have a judgment entered against you.
In any situation where someone has a judgment against you they can haul you into a hearing and require you to bring financial documents, lists of your jewelry and bank accounts and valuables, and just about anything else they care to ask of you. And you have to go and answer their questions. It's a mess.
The best way to avoid this is to not just walk away. Do a short sale. Negotiate with the lenders. Get help if you need it. But don't ignore this situation and let it just go…because more and more, it will come back to bite you.
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