A recent New York Times article reports that many loan servicers and lenders are increasingly pursuing deficiency judgments against former homeowners who have gone through foreclosure.
A deficiency judgment is the amount a former homeowner owes following a foreclosure sale. This amount is the difference between the debt owed and the foreclosure sale price. For example, if the former homeowner owed the lender $600,000 and the home sold at the foreclosure sale for $400,000, the deficiency judgment is $200,000. Under Massachusetts law, the lender has two years to try and collect this judgment against the former homeowner.
In the past, lenders have rarely attempted to collect these judgments; usually, former homeowners do not have any assets to make a debt collection case worthwhile. Moreover, a borrower can generally eliminate this debt through a bankruptcy.
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