Archive for After Foreclosure

Paramilitary SWAT Teams Now Enforcing Eviction Orders

As local American police forces have become more and more militarized, with weapons grants from the Department of Defense and militarized Keynesianism popular in Washington, DC, it should come as no surprise that even foreclosures are turning into SWAT team-appropriate events.

OregonDOT

© OregonDOT – flickr

The American Free Press has an article out today on a case in Idaho Sprints, Colorado, involing 22 SWAT officers loaded to the ears with military weaponry. What were they doing? Catching a serial killer? Taking down a mass murderer? Saving children from another of the TSA’s monsters?

No, they were enforcing a court ordered foreclosure seizure of a family residence. As the article states, “On October 30, the Clear Creek County, Colorado Sheriff’s Department dispatched 22 SWAT officers—decked out with military-green helmets and uniforms, fully automatic weapons and numerous other “bells and whistles”—to enforce a court order for a U.S. Bank foreclosure on the home of Sarah Donahue.”

The justification for the overwhelming show of force was, of course, to keep the officers “safe.” However, in the interest of total officer safety, the next logical step is for the local police to call in a drone strike to destroy the house completely, while fleecing the local taxpayers to cover the cost of the house.

After all, the taxpayers can pay the bank for the destroyed house, the officers can remain at a safe distance while never having to come into contact with those they “serve” and “protect,” and the federal government can hand out more defense contracts to drone agencies. And finally, with one more house destroyed, prices can only rise as a result of decreased supply, right? Everyone is a winner with militarized police agencies enforcing evictions.

Now, the homeowners who defaulted on their loans should have to face the consequences of such an action. That could involve having to pay back more, or negotiating with their lender for a loan modification of some sort, or simply leaving the property to foreclosure and dealing with the consequences of poor credit. However, they should not be forcibly evicted by a paramilitary organization within their local police force.

Lost a Job? Prevent Eviction by Cleaning Out Foreclosed Properties

One of the businesses that have been booming despite (or because of) the current economic downturn is cleaning out foreclosed homes. When banks purchase homes at auction, they usually begin eviction proceedings. After the eviction has been completed, any items remaining in the property will be thrown away. The lender or the county, depending on how evictions work locally, hire private companies to haul away the belongings.

©Cool1723 - flickr

©Cool1723 – flickr

Depending on how many foreclosures are affecting an area, this can be a significant source of income for small business owners in the real estate market. There is probably not a ton of money in cleaning out abandoned foreclosed homes, but the work might be pretty steady with a large inventory of homes that need to be cleaned out, and more coming on the market every week.

People looking to break into this type of market should contact either two places:

The first organization to contact is the county sheriff’s department in the area that the business will be working in. The sheriff is responsible for carrying out eviction orders after foreclosure, changing locks, and cleaning out homes. Except for bringing the guns to intimidate people into leaving, the other services are usually contracted out — sheriffs do not usually work as locksmiths or house cleaners. Others starting a new business may be able to do the cleaning by contracting with the county government.

Second, the cleaning business can try to contact the banks that purchase the foreclosures at the auction and attempt to get a contract with them to clean the homes. When banks purchase homes at auction, they hire local real estate brokers to list and sell the properties. It would not be out of the ordinary for them to hire a cleaning agency to clear out all the remaining property and keep the house in decent condition while it is empty.

The business will have at least a couple of concerns going either way. If they work for the government, the pay may be lower, as it is coming from a government with a decreasing tax base. And who knows how much red tape the business will have to cross to be a contractor with the county — or if there is already a politically-connected company doing this work. With the bank, it just might not be interested in hiring a small company and spending even more money on homes it has already lost to foreclosure.

But there might be some counties and some banks that will be open to these types of services. As with all businesses, some people will see the value, and others will pass on the opportunity. Cleaning out foreclosed homes is a growing business, but like all real estate related businesses, it is all local. There will always be more money to make performing these services in areas with a large population, high foreclosure rate, and with government or banks open to hiring such companies.

How Tenants Can Deal with Landlords Losing a Home to Foreclosure

When homeowners face foreclosure on a property they are renting out, tenants often begin to

©stevedepino.com - flickr

©stevedepino.com – flickr

worry about the status of their home. Will the landlord be able to avoid foreclosure? Should the tenants stop paying rent? Will the new owner at the auction evict them, or will the purchaser honor the lease agreement? Unfortunately, many of these questions exist due to differences in the treatment of tenants under state law.

Many times, the first action a purchaser at a foreclosure auction takes is to begin the process of evicting former owners or tenants, whether this action is legal or not. In many cases, although it is not legal, the new owners will pursue this anyway in their effort to take possession of the property as quickly as possible. If this happens, it is usually up to the tenants to assert their rights under the lease.

Much of the confusion rests on two related issues. The first is that tenants’ rights after a foreclosure are defined under state law, and each state will treat the issue slightly differently. Another issue is that tenants are the group most forgotten about in all of the efforts and discussion to help homeowners stop foreclosure. Protecting the rights of the renter is far down the list of priorities for most politicians attempting to help homeowners save their homes.

Tenants in different situations will have different rights. State law plays a large role, as does the nature of the lease itself. For instance, a lease that was entered into before the mortgage was placed on the property will usually survive a foreclosure. The lease existed before the mortgage was entered into, while the mortgage was in default, and during the foreclosure process. A purchaser at auction will not receive a greater interest in the property than existed before the mortgage.

There are two different views on the much more common issue of a lease entered into after a mortgage is executed. The majority opinion is that a lease will survive foreclosure if the lender is on notice that the tenancy exists. The exception to this rule is if the foreclosing lender makes the tenants are party to the foreclosure lawsuit; in this case, the lease may be exterminated after the foreclosure is completed.

Another view on this issue is that the foreclosure terminates the lease whether or not the tenants are made a party to the foreclosure lawsuit. In cases of nonjudicial foreclosure through a power of sale clause, most courts have held that the foreclosure extinguishes the tenants’ rights in the property under the lease agreement. This gives tenants very few rights to defend their interest in the home.

One issue that homeowners, lenders, and tenants need to be aware of is that of the notice requirement mentioned above. If the lender has notice of the lease agreement, either actual or constructive, and does not include the tenants in the foreclosure proceedings, the lease will most likely survive the foreclosure auction. This makes the notice extremely important for tenants, foreclosing lenders, and purchasers at auction.

A number of different documents or actions can provide notice to the lender of the lease agreement. A recorded lease provides notice, for example. Also, if it should be apparent that tenants are living in the property, the lender may have the responsibility of investigating to determine the tenants’ claims. An apartment building or property with more than one unit may also provide notice just by the nature of the building itself.

Homeowners are usually somewhat lacking in their efforts to help tenants deal with the foreclosure process. This often leaves renters on their own to figure out how to respond, and many end up not paying rent and being evicted quickly after a foreclosure auction. Unfortunately, this is often the worst possible scenario, and may not even be legal. But too few tenants know their rights after the home they are renting is foreclosed.

Short Sales, The IRS, Forgiven Debt, and Income Tax Exemptions

©insurance5 - flickr

©insurance5 – flickr

Homeowners who sell their homes through a short sale are often very concerned about the tax implications of the sale. The bank, by forgiving a portion of the debt, is then responsible for reporting the forgiven amount to the IRS as income to the borrowers. At tax time, the former homeowners are responsible for including this amount in their gross income and then paying taxes on it.

Thus, there is a strong possibility that homeowners who sell their home for less than what they owe on it will have to pay thousands of dollars out of pocket in order to cover the tax bill on the short sale. They thought they were losing the home but avoiding having to make an expensive payment to the lender. In the end, though, they lose the home and still have to make a large payment to the IRS.

Homeowners, though, may be able to avoid this situation if they fall under a couple of exemptions, or the amount of debt forgiven is classified a certain way.

For instance, if the borrowers are insolvent prior to the discharge of the debt. The amount that can be excluded from their income is that amount up to the extent of their insolvency. As an example, f the borrowers have $10,000 in assets and $18,000 in liabilities, they are insolvent by $8,000. Debt can be forgiven up to $8,000 before they would have to report it as income to the IRS. But any amount over $8,000 forgiven would have to be reported and taxes would have to be paid on.

There is also an exemption for debts that are discharged through the bankruptcy process. There is no limit to this exemption from income, as homeowners can exclude an unlimited amount of discharged debt if it has gone through bankruptcy. The only stipulations are that the borrowers be under the supervision of the bankruptcy court, and the court grants the discharge of the debt.

Foreclosed homeowners may also be able to have the debt forgiven as interest and other fees, which do not count as income. Only forgiven principal would be considered forgiven debt, so if the borrowers and bank agree that the amount not collected due to the short sale consists mostly of fees and interest, there may be no income due to the sale of the property. This exclusion, however, may be affected if the borrowers took a tax deduction for interest in previous years.

There are a number of tax issues that homeowners should be aware of when they are considering whether or not to go through with a short sale. Although they may end up with a 1099-C form at the end of the year showing a large amount of forgiven debt, this does not mean that they have to pay taxes on all of that income, depending on their financial situation.

Despite some tax issues, a short sale still remains a viable solution to foreclosure. In fact, the government has even loosened some of the rules on income due to short sales, as well as providing other incentives for lenders to consider alternatives to foreclosing on a home. With more foreclosures will come more attempts to help borrowers reduce the financial burdens that come with owning or losing a home.

Homeowners Using Wrongful Foreclosure Claims Against Mortgage Companies

In some cases of foreclosure, there may be enough instances of misconduct by the lender to show that the entire process constitutes a wrongful foreclosure. Many states even have common law regarding this issue, as well as a cause of action specifically for “wrongful foreclosure.” Although the claim has not been popular in recent history, homeowners may be able to use this claim after losing their home.

©REWealthCoach - flickr

©REWealthCoach – flickr

When extreme circumstances affect the process of taking the home back, homeowners may have a better case to make for wrongful foreclosure. Instances of mortgage servicing abuse, for instance, have been used in the past as a complete defense to foreclosure. When notices are not given to borrowers or the servicing company refuses to negotiate for an alternative solution to foreclosure, there may be a defense to the entire action.

When homeowners are unable to get through to the lender to negotiate for a loan modification or other solution, claims of wrongful foreclosure may be raised. Many different types of mortgage contracts (FHA, for instance) require some sort of preforeclosure meetings or negotiation, and courts have held that foreclosure is such a harsh remedy that it should be relied upon as a last resort.

However, many banks are notoriously difficult to communicate with, often calling homeowners dozens of times a day, but with no real resolution to the problem even if the borrowers answer and want to negotiate. Collection calls rarely turn into productive discussions of alternatives to paying back all of the arrears at once, entering into an expensive repayment plan, or losing the home to foreclosure.

When borrowers are unable to get through to someone authorized to make a decision about their account, and the foreclosure process keeps moving through the courts, there may be a case for wrongful foreclosure. Homeowners may want to resolve the situation, but no good alternative is considered by the bank beyond lawsuits or the sale of the property at a county auction.

A wrongful foreclosure claim may also be raised in instances where the lender or servicing company has added excessive late fees, interest charges, home inspection fees, appraisal charges, improper escrow advances, forced placed insurance, and other charges. Lenders will add these fees in order to create a small default on a property with substantial amounts of equity, and then to eat up any remaining equity between the time of default and the sheriff sale.

Homeowners should be aware that there is relatively little recent case law on the claim of wrongful foreclosure; however, depending on the circumstances, it may be worth raising it as part of a defense to foreclosure. As always, state statutes and laws will affect how much this claim is worth pursuing, so it may be in the best interests of the borrowers to speak with a knowledgeable attorney.

Limitations on Banks Going After Deficiency Judgments

Homeowners are often worried that the foreclosure process will never end. The bank will sue them, publish their personal financial problems in the newspaper, take their home back, evict them, and then sue them again for any deficiency from auctioning the property. With the anticipation of a deficiency judgment, borrowers may feel like they will never be able to restart their lives and move on after foreclosure.

However, this is most often simply not the case. The potential for a deficiency judgment, while it exists, can be microscopically small. For a variety of reasons, banks do not pursue homeowners after foreclosure, even if there is a deficiency. As well, there are numerous state and local statutes and court decisions that place limits on how much money a bank can even obtain from this type of lawsuit.

First of all, many lenders decide not to sue for a deficiency judgment because they know that homeowners are unlikely to have any other assets with which to pay the debt. Most borrowers default on their home due to financial hardships such as a job loss or major medical expense. It is probably safe to assume that families in this position do not have the income or assets to pay a judgment for tens of thousands of dollars.

©Bljunk - flickr

©Bljunk – flickr

In many cases, the bank, in order to obtain such a judgment, will have to spend several hundred or thousand dollars out of its own pocket. Court fees must be paid if another lawsuit is to be brought into court, and attorney costs will be paid out of pocket by the bank to proceed with the deficiency lawsuit. After losing so much money from the foreclosure and auction of the home, banks most often cut their losses instead of look for a deficiency.

State statutes regarding deficiency judgments also come into play and can dramatically affect how much the bank is able to sue for or recover from the former homeowners. However, borrowers should also be aware that most anti-deficiency judgment statutes apply only to purchase-money mortgages, and second mortgages or refinances may not be affected by these particular laws.

In fact, some states have simply banned deficiency judgments against borrowers when the foreclosure was done nonjudicially through a power of sale clause in a deed of trust. Borrowers in these states can be completely safe from being sued after foreclosure. Although the nonjudicial process affords the fewest legal protections during the foreclosure, it may offer the best chance of avoiding being sued again after the auction.

Other states place restrictions on how much a lender can recover from a deficiency by limiting the amount of the judgment. This is done by giving borrowers a credit for the “fair value” of the property. The fair value is determined by figuring out what the property is actually worth, and this will most often be defined by the statute itself. It may not mean the sales price at auction or the market value of the home, so it is important to read to the state law on the issue.

Another restriction that has been placed on banks seeking deficiency judgments is strict time frames in which the judgment can be initiated. If banks were able to wait years before suing the former owners, it may be nearly impossible for the family to get on with its financial life. Instead of having borrowers live with the threat of a lawsuit, states have decided that deficiency judgment suits must be pursued almost immediately after foreclosure, or the opportunity to do so is eliminated.

Lenders may also have procedural restrictions placed on their ability to sue borrowers after foreclosure. In some cases, the bank may have to provide additional notices to the owners informing them of the intent to seek a deficiency judgment. As well, the bank may be required to seek a determination of deficiency in the original lawsuit, rather than bring a lawsuit seeking the judgment after the sheriff sale has been conducted.

Many of these restrictions may come into play at the same time, while banks will run into one after another in other foreclosures. These limitations and additional requirements, along with the likeliness of never being able to collect on the judgment, ensure that the majority of homeowners are safe from being sued for a deficiency. While it is not impossible to be sued by the bank, the legal hurdles to overcome in pursuing this lawsuit make it somewhat rare in the world of foreclosures.

How Homeowners Can Set Aside a Foreclosure Sheriff Sale

©REWealthCoach - flickr

©REWealthCoach – flickr

Too many homeowners who have already lost their homes are looking for one final chance to get them back. They have contacted nearly every loss mitigation company, nonprofit organization, and government agency in the country, all of which have informed them that they do not qualify for any plan currently available to help them get their properties back after a foreclosure already been completed.

Is this true? Is there really no hope for borrowers whose homes have been sold and the auction has been confirmed? In most cases, this is not true, as there are still some remedies available after a foreclosure where a sale can be reversed and the owners given back ownership of their house. One of the main problems is that few companies or foreclosure specialists know about these last resort methods.

However, homeowners should be aware that these methods to get a home back after foreclosure may be very difficult to pull off. They should not be relied upon as the first option to stop foreclosure, as it can be much easier to qualify for a refinance, loan modification, or repayment plan. For the borrowers looking for one final opportunity, or those just trying to delay eviction for as long as possible, though, challenging the sale may be worth considering.

There are a number of grounds on which a foreclosure auction can be set aside, just as there are numerous claims to bring up in defending the lawsuit in the first place. In most cases, homeowners will have to bring their claims into the local court and attempt to have the sale reversed before they are evicted or the house falls into disrepair. The different types of claims that homeowners can bring into court are discussed more below.

The first way to challenge a trustee sale is based on irregularity in the conduct of the auction itself. This is often due to a lender or trustee not following the correct notice requirements to have a house sold through the auction process. Material violations of notice requirements may be enough to set aside the sale, although small technical violations may be ignored by the court unless they adversely affect the foreclosure or have the possibility of encouraging fewer bids or lower bids.

The inadequacy of the sales price may also be grounds to set aside a foreclosure auction, although the common definition of “inadequate” has been taken to mean shocking the conscience of the court. Courts in many different areas have either set aside or refused to set aside foreclosure auctions due to low sale prices at auction. It may be wholly dependent on the judge in the case to decide whether or not to reverse the sale.

For instance, some courts have decided cases such as these: $875 for a property with $27,000 in equity was not set aside. $2,000 for a property worth $18,000 was set aside. $10,304 for a property worth $57,500 was set aside. Thus, it may be very difficult to determine whether a price at auction is inadequate without bringing the issue into court.

An inadequate price coupled with irregularity in the conduct of the sale may make an even stronger case for the court to set aside the auction. Courts have decided over time that the lower the price of the property, the more any technical or minor irregularity or procedural violation will be taken into account. This may give homeowners strong motivation to challenge their trustee sale.

A final reason to set aside a sale may be an inadequate price plus unfairness to the borrowers. The definitions of “inadequate” and “unfair” will have to be fought out in court, but properties which sell for far less than they are worth may be a sign of bad faith on the part of the lender, which has a duty to obtain the highest price possible for a property it auctions. Especially if the lender turns around and sells the home for more soon after the sheriff sale, unfairness may be determined.

Homeowners who are relying on such defenses to save their home, however, may find themselves disappointed in the end. The further along the process their home goes, the more difficult it will be to hold onto it and get another chance to make on-time payments. These challenges to a sheriff sale may be successful, or they may not be. But they should be considered one of the last resorts after everything else has been tried, but before moving out of the house completely.

Wage Garnishment and Deficiency Judgment After Foreclosure

Homeowners are often worried about further collection attempts after a foreclosure has been completed. After losing their homes, they worry about seeing their car repossessed, bank accounts levied, or wages garnished. But in most cases, there is little chance of a deficiency judgment or future collection attempts due to the numerous obstacles in the path of the bank.

©Loan Leaders of America Inc. - flickr

©Loan Leaders of America Inc. – flickr

This is the factor that most borrowers do not consider when worrying about the possibility of a deficiency judgment. It is often not in the bank’s interest to spend its time and resources pursuing previous foreclosure victims who found it difficult to pay back their original loans. It costs money and takes time to hire attorneys and proceed with another lawsuit in the court system, and there is little incentive to do so against defendants who proved they do not have the financial ability to pay a judgment.

There are at least five considerations that banks have to take into account before they proceed with suing and attempting to collect on a deficiency judgment. These considerations are as follows:

  • Does the law allow a deficiency judgment?
  • Was there a deficiency at the sheriff sale?
  • What is the fair market value of the home?
  • Is there a reason to expect the borrowers can pay?
  • Is the judgment likely to be discharged?

These five issues are discussed in more depth in the paragraphs following.

The first consideration homeowners have to take into account is, does their state allow deficiency judgments after foreclosure? They should immediately look up their state foreclosure laws to find out if this is even a possibility, let alone probably. If they are not allowed, then there is no danger of garnishment. If yes, other factors will have to be met before collection efforts can resume.

Second, if the state allows a deficiency judgment, was there actually a deficiency at the sheriff sale? A deficiency is when the house sells for less than what the borrowers owe on it. If they owe $140,000 and the property is auctioned for $130,000, there is a $10,000 deficiency. Unfortunately, due to rapidly declining home values, many foreclosure auctions end with a deficiency.

Third, what is the fair market value of the home? Many courts will allow a deficiency judgment only for up to the actual value of the house. Using the example in the previous paragraph, if the house auctioned for $130,000 and the homeowners owed $140,000, but the fair market value is $135,000, courts may limit the deficiency to a maximum of $5,000. That is the fair market value ($135k) minus the sales price at auction ($130k).

Fourth, if the state allows a deficiency and there is one that is above the fair market value of the home, what gives the lender the incentive to go after the judgment? Many lenders will not bother with a deficiency judgment because they know that homeowners in foreclosure are strapped for cash. It costs more in attorney fees and court costs than the lender will ever be able to recover from most borrowers, so what is their incentive to sue for a deficiency?

The final consideration when examining the possibility of wage garnishment for a debt after foreclosure is that deficiency judgments are dischargeable in bankruptcy. If the bank gets a judgment against borrowers and tries to garnish wages, the former owners can file a Chapter 7 and have it eliminated, if they meet the other requirements for a Chapter 7 bankruptcy. So even in the worst case scenario, homeowners might be able to avoid wage garnishment.

Thus, unless many of these considerations work out in favor of the bank, there is little chance of a deficiency judgment. This does not mean that there are no such judgments, as some states allow the request for a deficiency to be included in the original lawsuit. However, it does mean that many lenders have decided not to pursue homeowners after the foreclosure is over and the home sold, regardless of whether the bank was completely paid back by the auction or not.

Foreclosure Auction Occurs but Ownership is Not Transferred?

©Ga Home Foreclosures - flickr

©Ga Home Foreclosures – flickr

At the end of the foreclosure process, once all of the notices have been sent and published and the lawsuit has ended, a public auction is held to dispose of the property. This typically called a sheriff sale or trustee sale, and is the event during foreclosure where borrowers’ ownership interest is transferred to the buyer at auction. But sheriff sales do not always go smoothly, and homeowners may need to find out if their home was sold or not.

For instance, if the lender called off the scheduled sale for any reason, homeowners may believe that their property was sold out from under them when they are, in fact, still the owners. Banks cancel auctions for any number of reasons, from not having an inspection done, to waiting for an appraisal, to a response by a request for more time from the borrowers themselves.

Another factor that may cause a sheriff sale to be scheduled but not confirmed is if a third party bids on the home, wins the auction, but can not pay the purchase price. If this is the case, the property may have to be put up for auction again, in the hope of finding a more willing and able buyer. If this happens, though, homeowners may not even know the first auction did not count, as they assume the house was sold and paid for.

This is why, after a sheriff sale, it is important for homeowners to make sure that their home was actually sold and properly confirmed by the county. If the property was not sold, the borrowers may be able to keep living in their home until a valid auction is conducted. This may take an additional two or three months to schedule, conduct, and confirm, and all of this time can be used by the homeowners to save up more money.

There are a number of ways to find out if a property has been sold or if an auction has been confirmed. Possibly the easiest way is for homeowners to call the county recorder’s office or the clerk’s office and ask them to provide the information as to who currently owns the property, as well as any liens on the property right now. If the bank purchased it, there will most likely be no liens, but if a third party took out a loan to buy it, there may be a new mortgage affecting the deed.

This would be the easiest way to determine the status of the sheriff sale, since the county in which the property is located keeps all of the records affecting the property. If the foreclosure went through but there was a problem with the sale, they will be able to give the homeowners that information, while the court will be able to inform them if a new auction has been scheduled yet.

But if no documents have been recorded to show a transfer of ownership, then the house may have to be auctioned again at a later date. Especially if it is a few months after the scheduled auction and no documents to show a transfer of title have been filed, it may indicate that the sheriff sale was not valid. This may be due to any of the reasons listed above, but especially if the high bidder could not pay, the house may just be auctioned again.

In the meantime, the original owners might still have possession and legal ownership rights of the property, just as they had during the foreclosure process. According to many state foreclosure laws, it is the confirmation of the sale that finally transfer ownership to the high bidder at the auction — if that has not been done in a particular case, the borrowers may still own the property for now.

Wage Garnishment Through a Deficiency Judgment After Foreclosure

Homeowners are often worried about further collection attempts after a foreclosure has been completed. After losing their homes, they worry about seeing their car repossessed, bank accounts levied, or wages garnished. But in most cases, there is little chance of a deficiency judgment or future collection attempts due to the numerous obstacles in the path of the bank.

©ghhomebuying - flickr

©ghhomebuying – flickr

The first consideration homeowners have to take into account is, does their state allow deficiency judgments after foreclosure? They should immediately look up their state foreclosure laws to find out if this is even a possibility, let alone probably. If they are not allowed, then there is no danger of garnishment. If yes, other factors will have to be met before collection efforts can resume.

Second, if the state allows a deficiency judgment, was there actually a deficiency at the sheriff sale? A deficiency is when the house sells for less than what the borrowers owe on it. If they owe $140,000 and the property is auctioned for $130,000, there is a $10,000 deficiency. Unfortunately, due to rapidly declining home values, many foreclosure auctions end with a deficiency.

Third, what is the fair market value of the home? Many courts will allow a deficiency judgment only for up to the actual value of the house. Using the example in the previous paragraph, if the house auctioned for $130,000 and the homeowners owed $140,000, but the fair market value is $135,000, courts may limit the deficiency to a maximum of $5,000. That is the fair market value ($135k) minus the sales price at auction ($130k).

Fourth, if the state allows a deficiency and there is one that is above the fair market value of the home, what gives the lender the incentive to go after the judgment? Many lenders will not bother with a deficiency judgment because they know that homeowners in foreclosure are strapped for cash. It costs more in attorney fees and court costs than the lender will ever be able to recover from most borrowers, so what is their incentive to sue for a deficiency?

The final consideration when examining the possibility of wage garnishment for a debt after foreclosure is that deficiency judgments are dischargeable in bankruptcy. If the bank gets a judgment against borrowers and tries to garnish wages, the former owners can file a Chapter 7 and have it eliminated, if they meet the other requirements for a Chapter 7 bankruptcy. So even in the worst case scenario, homeowners might be able to avoid wage garnishment.