Facing foreclosure is a complex and emotionally charged experience. The potential for a deficiency judgment after the case has finished adds another layer of stress and financial uncertainty. This comprehensive guide explores deficiency judgments in Illinois, empowering homeowners with knowledge and options as they navigate this challenging situation.
Understanding Deficiency Judgments:
- What is a deficiency judgment? It’s a court order holding you personally liable for the remaining balance after a foreclosure sale if the sale price doesn’t cover the entire mortgage debt. Essentially, it’s a personal debt for the difference.
- How is it calculated? Subtract the foreclosure action price from the total amount owed at the time of the sale. This number is different from the amount you first borrowed for your mortgage loan. It’s the final number mentioned in the official foreclosure judgment, reflecting any accumulated fees, interest, and late charges accrued before the sale. The remaining sum represents the potential deficiency judgment.
- Where do I find the final Auction price? To locate the final auction price, check the auctioneer’s website or get in touch with the law firm overseeing the foreclosure. It’s important to note that if the mortgage company acquired the property through a “credit bid” during foreclosure, there’s a strong chance there was no deficiency. In such cases, the lender deducts this credit from the foreclosure judgment figures, minimizing the likelihood of a shortfall.
- Types of deficiency judgments in Illinois:
- In personam: This judgment allows the lender to collect the debt through various collection actions like garnishing wages, seizing bank accounts, or foreclosing on other assets you own.
- In rem: This judgment only attaches to the foreclosed property only, not your personal assets. While the lender can potentially sell the property again to recoup the deficiency, you’re not personally liable for any remaining balance. In my experience, this type of deficiency is more common than In personam.
Key Considerations for Illinois Homeowners:
- Deficiency judgments are legal in Illinois: Unlike some states with stricter protections, Illinois allows lenders to pursue deficiency judgments after foreclosure.
- Consulting an attorney is crucial: Navigating foreclosure and deficiency judgments is complex. An experienced attorney can explain your rights, explore options, and represent you effectively in court if necessary.
- Bankruptcy could be an option: Chapter 7 bankruptcy can wipe out unsecured debts, possibly reducing or eliminating a deficiency judgment. If your goal is to secure more time in your home and shield yourself from deficiency judgments, it’s essential to grasp the timing of your bankruptcy filing. On the other hand, Chapter 13 enables the restructuring of debt into a manageable repayment plan. It’s essential to be aware that bankruptcy comes with its own consequences, and seeking advice from an attorney is vital to determine if it’s the right choice for you.
- Deed in lieu of foreclosure and short sales often waive deficiency: These alternatives to traditional foreclosure typically involve agreements where the lender waives the right to pursue a deficiency. However, carefully review the agreements to ensure this protection is explicitly included.
Beyond the Basics:
- Impact of deficiency judgments: They can significantly impact your credit score, future borrowing ability, and overall financial well-being. Depending on the amount and collection methods, they can create long-term financial hardship.
- Warning signs of a potential deficiency judgment: This risk is higher when the property value is significantly lower than the mortgage amount, leading to a larger potential deficiency. Understanding your home’s market value and loan-to-value ratio is crucial.
- Alternatives to foreclosure: Exploring options like loan modifications or short sales with your lender can potentially help avoid foreclosure and the associated deficiency judgment. These options come with their own complexities, so consulting an attorney is recommended.
Taking Action:
If you’re facing foreclosure, here are some essential steps:
- Seek legal counsel immediately: Don’t delay. An attorney can explain your rights, analyze your options, and guide you through the process.
- Contact your lender: Discuss potential solutions like loan modifications or short sales. Explore all options to prevent foreclosure and a potential deficiency judgment.
- Gather financial documents: Prepare documents related to your income, expenses, and assets to help your attorney assess your situation and explore different strategies.
- Stay informed: Educate yourself about foreclosure laws, deficiency judgments, and your rights as a homeowner in Illinois. Utilize resources like the Illinois Attorney General’s Consumer Protection Division website.
- Communicate openly: Maintain open communication with your attorney, lender, and any other involved parties. Timely communication can be crucial in exploring solutions and protecting your interests.
Remember: Facing foreclosure and deficiency judgments can be overwhelming. By seeking legal counsel early, understanding your options, and making informed decisions, you can navigate this challenging situation with greater confidence and protect your financial future.
