Joseph Reilly lost his vacation home here last year when he was out of work and stopped paying his mortgage. The bank took the house and sold it. Mr. Reilly thought that was the end of it.
In June, he learned otherwise. A phone call informed him of a court judgment against him for $192,576.71.
It turned out that at a foreclosure sale, his former house fetched less than a quarter of what Mr. Reilly owed on it. His bank sued him for the rest.
The result was a foreclosure hangover that homeowners rarely anticipate but increasingly face: a "deficiency judgment."
Forty-one states and the District of Columbia permit lenders to sue borrowers for mortgage debt still left after a foreclosure sale. The economics of today’s battered housing market mean that lenders are doing so more and more.
The Wall Street Journal also added that the average loss for properties sold to the bank at auction was $100,000. Since about two-thirds of foreclosures since 2007 have taken place in states that allow lenders to sue for the loss, increasingly banks are doing so because apparently they now care more about shoring up their capital than the negative PR that results from suing people who lost their home. It helps, of course, if the other litigant is a strategic defaulter.
Also, the statute of limitations is five years for this kind of default. That means the banks still have until the beginning of 2012 to sue a strategic defaulter from early 2007.
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