Can a Lender Go After Personal Assets in a Foreclosure?

A foreclosure occurs when the lender takes possession of a piece of property, usually due to the borrower's lack of payment on the corresponding note. If you are in foreclosure or anticipating one, you should understand that foreclosure will allow the lender to go after your personal assets as a result.

Identification

When a lender takes possession of a piece of property due to non-payment of the note by the borrower, this is called a foreclosure. Based upon the signed contract between the lender and the borrower, the lender has the right to pursue foreclosure since the property is the collateral for the loan. Even a significant down payment made when entering the loan does not prevent a foreclosure. A foreclosure will appear on a credit report as a public record for up to seven years.

Considerations

Depending upon the state where the property is located, the lender may be able to gain access to your personal assets. If your state allows for recourse loans, which means you are personally responsible for the debt, then even if the property is foreclosed upon, once the lender sells it, you are responsible for the difference between the amount owed on the loan and the amount the property sold for. This is called a deficiency.

Significance

If you owe a deficiency, the lender may decide to sue you in court to obtain a deficiency judgment against you. The judgment will specify the amount that you owe. Depending upon the laws in your state, with a judgment, the lender can garnish your wages, seize funds in your bank account and place a lien on other property that you own, including your vehicle and may be able to force you to sell that property to satisfy the judgment.

Warning

If you owe a deficiency debt, even if the lender doesn't sue you for it, that lender may decide to hire a collection agency to collect that debt or sell the debt to the agency. If so, the collection agency will place a collection account on your credit report that will remain there for up to seven years. The agency can pursue collection activity against you including calling you and suing you in court to obtain a judgment.