Is there deficiency judgment after foreclosure?

When a mortgage company-Lender- forecloses upon a house, more than likely, it will turn around and sell the house to recover any money owed by the previous homeowner. This amount includes the prior mortgage balance, lawyer’s fees, late payment fees and administrative expense acquired during the foreclosure process. In many cases, in today’s real estate market situation, a lender is able to sell the property at a portion of the cost. The consequence is that the lender losses money on the transaction.
For example, a lender loans a borrower $300,000 to buy a house. 1 year later, the homeowner fails to make the payments and the lender is forced to foreclose. When lender sells the property, it is only able to sell it for $250,00. This results in a $50,000 loss to the lender plus all the fees mentioned above.

In some states, the lender may be entitled to receive the deficiency judgment in court for the remaining balance owed. This means that the lender could sue the home owner for $50,000 loss, that lender incurred. Not in Arizona though. There are some limitations written in State laws: "anti-deficiency" statutes prevent a lender from suing a person for any losses on a home after foreclosure.

Arizona Anti-Deficiency Law says if home is secured with Deed of Trust and sold at Trustee’s Sale no action may be maintain to recover deficiency if:

• The property is 2.5 acres or less

• Used for single family or two family dwelling

• Sold pursuant to the Trustee's power of sale.

The only exceptions to Arizona’s anti-deficiency statutes are VA loans.
If a lender seeks a deficiency judgment, it has 90 days after the sale of the property to begin judicial proceedings to recover.

New mortgage fraud by big banks

In order for a short sale with two loans to happen, the second lien holder has to drop the lien.

If they don’t, and there’s no short sale, the home goes to foreclosure and the first lien holder gets the house because second liens are subordinated debt to the primary loan.

In short, the second lien holder gets nothing. In order to get the second lien holder to drop the lien, the first lien holder generally negotiates some partial payment to the second lien holder. The second lien holder doesn’t have to agree, but more and more are doing so.

That’s all legal.

But here’s what’s not legal and what’s apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. On the side means in cash, off the HUD settlement statements, so the first lien holder doesn’t see it.

And some agents are doing it to get the transaction closed, with probably very little awareness that is a RESPA violation.

RESPA is the Real Estate Settlement Procedures Act, the 2008 law requiring that consumers receive disclosures at various times in the transaction. It outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD.

Source: By: Diana Olick , Jan 15, 2010

Short Sale / Foreclosure Training

Maricopa, Foreclosed Homes...I have not seen that one yet

I have not seen that one yet.....Maricopa, Foreclosed Homes

I visit many homes after Trustee Sale with interested Buyers and wonder at what I might find indoors when I put the key into the lock. The last foreclosed home I toured had exceeded my expectation and imagination. I have seen a lot properties with missing:



1. Appliances such as stoves, built-in microwaves, dishwashers, etc.
2. Flooring tiles, parts of carpet
3. Kitchen Islands (ripped off from the middle of the kitchen)
4. Cabinets and counter tops
5. Light fixtures and ceiling fans, doors and hardware
6. Toilets, bath tubs and sinks
7. Furnaces and air conditioning units (A/C units are very popular)
8. Landscaping- trees, shrubs, bushes, bricks
9. ETC, ETC

When homeowners do leave their property, they do not always simply "walk away." Do they?

So, after a while I got used to it. Just warned my buyers what they can expect inside foreclosed properties.

What was done to home I went to recently in Maricopa, AZ just shocked me.

The homeowner must have been so furious and ready to take on the structure he lived in for at least few years. Inside the house we discovered purred CONCRETE into the toilet and bath drainage!!!! What a courage... to get the material and pay for it, invest a time and effort to prepare the mixture and fill in the drainage! GOAL achieved! The foundation must be ripped off and the entire drain pipes replaced. House do not qualify as livable (at least not up to FHA standardsJ)

Homeowner was probably having a bad day.

Some misguided home owners, angry at the bank for foreclosing, think it's somehow permissible to turn the home into a total nightmare. It is ILLEGAL. Banks are most likely to pursue and prosecute homeowners who vandalize or strip their homes while in foreclosure.

But does it really happen? Personally, I have not heard of any legal action against homeowner who stripped or demolish his house while in foreclosure.

Ethics in SHORT SALE process. Is there any????

Every new market condition creates new challenges for the realtors.

Buyers should disclose that are making multiple offers to the seller, because that my affect Seller's choice. But where? Is there any form approved by Department of Real Estate in any states?

There are debates if any action could be brought against the buyer making multiple offers on properties without full disclosure to the sellers for "lack of good faith". And for real estate agent representing the buyers for misleading information and manipulating the seller's decision of acceptance, according to a Code of Ethics.

How do we justify that? Agents representing buyers have a difficult time getting an offer accepted. Is it ethical for the Lender/Bank have no response for months? Certainly, it is ethical to a Seller, for whom the offer might the last chance to avoid foreclosure.

So, should you submit multiple offers on properties?

Every situation is different, and there are no blanket answers for a question like this. In the metro Phoenix area market, if you are interested in buying a short sale or foreclosure, you almost must submit multiple offers. It is not uncommon to submit an offer, and wait 10, 20, or more weeks to get an answer that lender/investor decided to reject the offer and foreclose anyway, so you are left off with angry buyer starting the process all over again. And buyer just want to buy a house, without waiting for months. It almost makes sense to secure offers on multiple properties and hope that at least one go through.

Without proper regulations and guidelines, the perception of today's market conditions is so puzzled, that is almost frightening to ask for correct answers. You put yourself at risk to receive to many different opinions.

Overall, I think that we have an obligation to a higher standards and the actions we take on behalf of our clients can never override our obligation to the Code of Ethics.