A foreclosure judgment is a court-ordered decision that permits a mortgage lender to pursue collection of unrecovered funds after foreclosing on your home. After a lender obtains a judgment, it can typically use aggressive tactics to collect from you, including garnishing your wages, taking funds from your bank accounts and liquidating your personal property. Depending on the lender's rules, you may be able to settle a foreclosure judgment to avoid these types of collection.
Deficiency
A lender typically uses a foreclosure judgment to establish a deficiency, which is the amount still owed by the borrower after the lender has completed foreclosure proceedings and sold your home. Depending on your state's laws, the lender may sell your home at a public auction or through a real estate agent or broker. The sale amount of the home may not be enough to cover the balance of your mortgage loan and foreclosure-related costs such as attorney and auction fees. The lender will hold you responsible for paying the deficiency.
Judgment
The lender may give you the opportunity to voluntarily pay a deficiency balance after foreclosure. However, if you cannot or do not pay the deficiency amount, the lender may file a lawsuit against you in civil or district court. Depending on your state's laws, you may have the chance to respond in writing or by appearing at a court hearing. If you cannot convince the court to dismiss the lawsuit, the court will enter a judgment in favor of the lender for the deficiency balance, plus interest and costs associated with filing the lawsuit.
Settlement
A settlement involves paying less than you owe for a debt; however, in this arrangement, the creditor considers the debt paid in full. Your mortgage lender may prefer to settle your deficiency rather than pursue a legal judgment, which is expensive for the lender. After the lender obtains a judgment, though, it may be less likely to consider a settlement because it has access to methods of collecting the full balance from you, such as wage garnishment and bank levies. Contact the lender and ask whether it will consider a settlement in which you would pay part of the judgment amount to satisfy the debt in full. If the lender refuses, hiring an attorney to represent you may increase your chances of negotiating a settlement.
Considerations
When you or your attorney negotiate a foreclosure judgment settlement with a lender, you will typically have to pay the agreed-upon portion of the deficiency in a lump sum. If the lender has foreclosed on your home, it is likely that you do not have the financial resources to pay a settlement amount in a single payment. Also, the lender may report the deficiency as settled for less than the full balance on your credit reports. This notation may add to the credit damage caused by foreclosure and judgment entries.
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