A foreclosure can be a very stressful and emotionally draining experience. Many who decide not to contest a foreclosure on their property think that the foreclosure means an end to their problems. If the bank sells my house, then I don't have any debt to the bank, right? Not exactly.
Unfortunately, many people are unable to get protection from foreclosure. Despite all the talk from the government about modifying the loan, most loan modification applications have been turned down by the major mortgage lenders. In fact, one of the largest mortgage lenders has turned down 96% of requests. It goes without saying, homeowners in debt are in trouble and have few options to help them.
Now, putting the emotional trauma of losing a home aside (if that is possible!), the financial burdens might not yet be over. Many people mistakenly think that they won't have any mortgage debt after their house sells in foreclosure. However, it's not that simple. If the home sells for a lower amount than you owe on your mortgage, you still owe whatever the rest of your mortgage balance. This balance, the difference between the value of the mortgage and the selling price, is called a deficiency.
In this economic climate, it is even more likely for a homeowner to end up with a deficiency after a foreclosure. The poor housing market has caused a large decrease in home prices. If you bought your home for $100,000 in 2005 with a mortgage, but now your home is only worth $80,000, then chances are that your mortgage balance is greater than the value of your home.
Lenders won't simply forgive deficiencies or let them go, either. Lenders will try everything they can to recover the balance including garnishing your paycheck, threatening your car or home, or going after what you have in the bank.
Although many are more in debt than they thought they ever could be, there are still options to pursue to help you with your deficiency balance. A Chapter 7 bankruptcy can eliminate your deficiency balance and other "unsecured" debts