Qualifying For Home Loans With Deficiency Judgments

Qualifying For Home Loans With Deficiency Judgments

This BLOG On Qualifying For Home Loans With Deficiency Judgments Was UPDATED On January 31st, 2018

Mortgage Borrowers can qualify for home loan with bad credit. Lenders with no mortgage overlays will not require borrowers with outstanding collections and charge off accounts to pay those off. Mortgage Guidelines do not require borrowers to pay outstanding bad credit to qualify for government and conventional loans.

Home Buyers can qualify for FHA, VA, and Conventional Loans with deficiency judgments under the following circumstances:

  • Have a written payment agreement with judgment credit
  • Have three months of seasoned monthly payments paid to the judgment creditor
  • Need to provide three months canceled checks and/or bank statements showing proof of three months payments
  • Deficiency judgments can be negotiated and paid in full prior to or at closing

What Are Deficiency Judgments?

A deficiency judgment is a court order that makes you liable for an unpaid debt to a creditor.

  • Judgments are issued by a judge
  • In cases where a home gets foreclosed and the homeowner has a deficiency, the lender can go after the deficiency
  • When a home goes into foreclosure and is sold at the sheriff’s sale for an amount less than what is owed to the mortgage lender, there is a deficiency
  • The mortgage lender can then go after the homeowner for a deficiency judgment
  • But needs to go through the proper channels of proper service
  • Most lenders do not go after the homeowner for the deficiencies
  • Once it goes to trial or the homeowner does not show up in court, the judge can issue a deficiency judgment to the homeowner

Case Study On Deficiency Judgment

Most mortgage lenders do not go after the homeowner on a foreclosure case.

  • However, on cases where a mortgage lender goes after a homeowner for a deficiency, the mortgage lender needs to file suit in court
  • For example, homeowners who default on mortgage loan
    • Home goes into foreclosure
    • Then goes into auction at the sheriff’s sale
    • Sells for a value lower than the mortgage loan balance due to the mortgage lende
    • The mortgage lender can decide to go after you for the deficiency
  • Lets say homeowner owes $300,000 on mortgage loan and property sells for $200,000 at the sheriff’s auction
  • Owner owes the mortgage lender $100,000
  • Most mortgage lender will charge off the $100,000
  • But some mortgage lenders may decide to go after homeowner for the deficiency
  • The ultimate result is a $100,000 deficiency judgment
  • A mortgage lender can go after more than the $100,000
  • The mortgage lender can sue for attorney’s costs, late charges, and fees associated with the foreclosure process

Enforcement Of Deficiency Judgment

Those who have little or no assets and nominal income are classified as judgment proof where a creditor cannot go after them.

  • A creditor cannot go after assets judgment creditors do not have or exempt assets such as their home
  • Most state laws protect a certain limit on the amount of money one earns before a creditor can garnishes wages
  • Pension and retirement accounts are generally exempt from garnishment from deficiency judgment enforcement

Deed In Lieu And Foreclosure Best Option To Avoid Foreclosure

If lender is allowed to pursue a deficiency judgment, there is no way to know whether or not they will.

  • In many cases, lender will not go to the trouble
  • Legal action is expensive and time consuming
  • People who just suffered a foreclosure often don’t have the assets or income needed to satisfy a deficiency judgment
  • People with resources wouldn’t have missed payments in the first place

Deficiency Judgment After Foreclosure

Depending on the state, deficiency judgments on foreclosures might not be permitted.

  • As stated earlier, most mortgage lenders will not pursue with trying to collect the deficiency from mortgage loan
  • Filing a lawsuit is extremely expensive and time consuming
  • If the mortgage lender realizes that debtor has very little or no assets, then the mortgage lender will probably not bother
  • However, if the mortgage lender realizes that one has assets and substantial income, then the mortgage lender will most likely pursue in filing a lawsuit and try to collect on the mortgage deficiency

Qualifying For Mortgage With Direct Lender With No Overlays

Home Buyers and Homeowners can qualify for mortgage with outstanding deficiency judgments.

  • They need a written payment agreement with the judgment creditor
  • Three months worth of payment seasoning is required
  • Judgment debtors cannot pay the three months worth of monthly payments upfront to qualify for mortgage
  • The three months needs to be seasoned
  • Proof of payment needs to be provided with three months canceled checks and/or bank statements
  • The judgment can be negotiated at reduced value and paid prior to and/or at closing as well

Those who need to qualify for mortgage with direct lender with no mortgage overlays on government and conventional loans can contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@loancabin.com.

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