Seemingly the most common reason people file bankruptcy today is due to real estate. Debtors who are behind on their mortgage are understandably worried that they could not only face a foreclosure, but their lender could also pursue a deficiency judgment. This worry will often lead debtors to filing bankruptcy so they cannot be sued for the balance.
While it is good to be thinking proactively, it is very important before a debtor decides to file bankruptcy because of a mortgage deficiency that the debtor familiarizes oneself with the lenders rights in their particular state. This is because the rules of both foreclosure and the ability to pursue a deficiency judgment and will vary based on whether the judgment debtor is in a judicial foreclosure or non-judicial foreclosure state. Judicial foreclosure means the lender must initiate a lawsuit to obtain a foreclosure. In some states, the lender can only take back the property and cannot pursue a deficiency. Therefore, it would probably be a waste to file bankruptcy in those states solely to protect against a creditor who cannot even sue the debtor for the balance.
In Georgia, a first mortgage holder can sue for a deficiency, but often does not. The reason is because for the lender to pursue a deficiency, they must go through a two-step process. The first part is called the confirmation of sale.
OCGA 44-14-161(a) states when any real estate is sold on foreclosure . . . and at the sale the real estate does not bring the amount secured by the deed, mortgage or contract, no action may be taken to obtain a deficiency judgment unless the person instituting the foreclosure proceeding shall, within 30 days after the sale, report the sale to the judge of the superior court of the county in which the land is located for confirmation and approval and shall obtain an order of confirmation and approval thereon.
As the borrower in most cases did not pay on the mortgage because he/she did not have the money, lenders often decide not to bother with the onerous process of this confirmation of sale because the debtor probably does not have the money to pay off the judgment anyway. The second part of pursuing the debtor involves the lender suing for a deficiency judgment amount after receiving an order at confirmation.
Note that the debtor can challenge the valuation at the confirmation sale, and the lender will have to prove the fair market value of the property regardless of what the property sold for at the foreclosure sale. Furthermore, even after getting an order of confirmation the lender still must sue on the note, so the debtor can still file bankruptcy then before getting garnished and can even still work out a settlement with the lender at that point.
Further note that the confirmation of sale is only applicable to the lender if it forecloses. As such, it is important whether there is also a junior mortgage that is not foreclosing. As that junior mortgage gets swallowed up in the foreclosure sale and that junior mortgage does not get the property, it is not bound by the confirmation of sale requirement. The junior mortgage owns a note that the debtor defaulted on and can simply sue the debtor on that default without going through the confirmation process.
For those considering bankruptcy, this whole timeline often presents a problem. The typical scenario plays out like this: The debtor only wants to file bankruptcy if it knows the bank is going to pursue a deficiency, but since the bank can only pursue the balance from the debtor by doing the confirmation after the foreclosure, the debtor cannot both wait until the last possible moment to file bankruptcy and file before the foreclosure sale to stop the house from going into foreclosure.
Although it is impossible to predict what the bank(s) will do, if the debtor is going to make its decision on what it likely to happen, the debtor should consider these factors.
If there is a junior mortgage, the debtor can be sued on this note default until the statute of limitations for the note itself expires, which is quite some time. So even if the lender is not going to sue the debtor now, the debtor might have the payoff of this note lingering in the background for several years.
If there is not a junior mortgage, the debtor should understand that if he/she has considerable assets and maybe is not paying this mortgage as part of a strategic default, then the lender is much more likely to pursue a deficiency than if the debtor simply has no assets to speak of. If the debtor has no assets, the first mortgage holder is probably going to just take the house and not sue the debtor on the note.
For an additional perspective on mortgage deficiency issues in Georgia, click here.
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How does the debtor “challenge the valuation at the confirmation sale?”
The confirmation sale is a hearing in front of a judge. The debtor will have notice of the hearing date. Regardless of the sale price at the foreclosure sale, the debtor can bring its own evidence to dispute the value the lender is alleging. An appraiser willing to testify to the debtor’s stated valuation is a good start. More evidence is county records or perhaps a realtor’s broker priced opinion.
We just finished the confirmation & approval hearing on my home foreclosure in Corneila Ga. The home loan was ~$130,000 and sold at auction and bought back by the bank for $60,000. We had a cosigner on the loan and they also were at the hearing and didn’t contest the proceeding. I have no assests, just went thru a divorce and owe the fed’s $12,000 in back taxes. How will I know if the bank files a deficiency judgement against me and my ex wife and cosigner.
A lawsuit for a deficiency judgment is like any other lawsuit in that it is initiated by a Complaint being filed in court. Defendants are served with the Complaint and then have 30 days to answer. It is theoretically possible that the Complaint has been filed, and you are not aware of it because you have not been served. In that scenario, you probably will start receiving solicitation letters from debtor attorneys who see a complaint has been filed against you, even if you have not yet been served.
If the bank went as far as filing a confirmation action, the odds are they will file suit for a deficiency judgment. Once confirming a confirmation sale, the creditor can sue under the note and statute of limitations just like any other creditor.
My husband had a foreclosure 5 years ago this April, he did not receive a 1099-C, I believe the one he received was a 1099-A. He owed $166k on the house and it sold for $75k. Is there anyway the lender can still come after him for the difference? We are really looking forward to being able to buy a home again, but are worried that they may put a lien on the new hone and that is a lot of money.
Virginia, almost certainly the bank will not or cannot pursue a deficiency balance since you state it issued a 1099. Also, you did not specify the state where your property was located. The first thing I would do would be to look to my state law and see what the bank must do to pursue a deficiency post foreclosure. Depending on your state law, the bank might be unable to pursue a deficiency or possibly have missed the statute of limitations. More than likely, the bank is too late to collect at this point. Should it still be eligible to collect under state law, I would then verify the 1099 and see if it therefore can no longer collect based on its issuance.
My Dad just had to let his house go into foreclosure due to the bank error of not paying property taxes for 4 years(they had the wrong lot #)My Dad paid the back taxes owed to Coweta county and thought that would suffice. The mortgage lender then raised his mortgage from$800 to $1600 a month to pay for those even though he paid up. He cannot afford this mortgage- he got a letter that said he had to respond in 30 days from a lawyer. Does he need to declare bankruptcy? I am just worried if they try to sue him they will wipe him out!!
I’m unclear what you mean by bank error of not paying taxes. Was your dad paying his property taxes through escrow or not? If he was paying by escrow, the bank needs to pay the property taxes. If so, why did your dad pay it? Further, you stated your dad let the house go to foreclosure, but then you reference a 30 day letter. That usually precedes foreclosure.
There is a lot of information you need to clear up first before determining if bankruptcy makes sense since it is not adding up. There hopefully is a simple explanation. Once the correct information is out there, a proper determination can be made at that point.
I have a issue. I’m in Georgia.
Bank forclosed on some rental property 7 years ago. They didn’t file a deficiency did not get a judgement or anything. My home was financed with the same bank.
I paid my house off a year ago and now they are holdiny dead hostage and saying I owe them deficiency money. My home has been paid off for a year and they didn’t file for a deficiency judgment at all but the are holding my home deed but stamped the note paid but will not release it.
Your question is unclear. It looks like you potentially had a primary residence and also a rental property and the lender on each was the same bank. I also did not understand how many mortgages were on the foreclosed property, and whether they were held by the same bank. Further, I would need to know whether there were multiple loans given on the same property by the same bank at the same time. There also might be an issue with cross collateralization.
Essentially, this question needs to be rephrased entirely from the start. You have to explain which properties you owned, how many loans were taken out on each, if the lenders were the same, which loan foreclosed, what dates the loans were given, etc…
I have a similar issue as Mr. Wilson’s. All properties are in GA. On a rental property, the first mortgage holder foreclosed (6 years ago) and did not confirm the sale then issued a 1099-C to me. I still continue to pay on the second note. Approximately one month after the foreclosure, by coincidence, the same bank that foreclosed on the rental property bought and still continues to hold my principal residence mortgage. Can the bank cross collateralize when/if I sale my primary residence or acquire other real estate assets (via lien) to collect deficiency of approx. 40,000? Currently, I have no liens. In this situation, can the bank pursue collections on the promissory note because I signed under seal (SOL 20)?
Can an individual perform steps necessary in court to get “order of confirmation and approval” and also sue for deficiency judgment?
This question is a little unclear as to whether it is asked on behalf of a debtor, creditor or both. It appears as if you are asking if a creditor can get a confirmation order on a home value being less than the loan balance and then sue on that deficiency. If so, yes, that is the presumed purpose behind trying to confirm a sale. The reason lenders confirm sales is because they are trying to establish the home value was less than the loan. The lender must take that step in Georgia to sue on a deficiency after it forecloses on a home.