Virginia Deficiency Judgement (Judgment) at Foreclosure? Current Trends & PMI

By
Real Estate Broker/Owner with Northern Virginia Homes - FRANKLY REAL ESTATE Inc

Update 7-9-08: This post is pretty worthless compared to the COMMENTS. They are a ton more insightful.

Something smells fishy.

Virginia Realtors: What are you all seeing in regards to Bank Deficiency Judgments/ Judgements*  in Virginia?

Disclosure: I am not a lawyer, this is a discussion and my understanding. This information is changing monthly, so please verify with a lawyer. When in doubt, ignore me. READ THE COMMENTS, ONE REALTOR SAID I WAS DEAD WRONG ON EVERYTHING.

My Understanding/Definition (ie correct me if I'm wrong): When a home goes to foreclosure* on the courthouse steps, the bank can either

  1. Buy it at the loan amount, or
  2. Let the price drop below the loan amount and then "win" the property for less.
  3. Let somebody on the courthouse steps win the property for less. (not/rarely occuring)

If they take the #2 or #3 option, they then have the right to go after the homeowner for a "Deficiency Judgment" where the borrower would still be responsible for the shortcoming (amount under the loan amount).

Ie, Home is bought for $1,000,000 with a $800,000 loan. The property happens to be worth $600k. The property is foreclosed on at the courthouse steps. The bank either 1) offers $800,000 and takes over the property, thus losing their right to go after losses or 2) Does not offer on the property and waits for the first bidder and buys for $600,000, or 3) Lets somebody buy it for $550k. In the #2 and #3 instance the bank can go after the previous owner for their $200,000 or $250,000 loss.

What I am finding is that the courthouse steps are vacant. (see Post's "No buyers, no bidders.") Why? Because the banks are taking them back at the loan amount (not the property value).

Now the big question is WHY!

Why would they take over the property at $200,000 OVER what is it worth and let the previous owner be releaved from further obligations?

I suspect:

  1. They don't have the time to figure out which properties are worth what. Sure it would cost $50 for a BPO (Broker's Pricing Opinion) or $300 for an appraisal that they will have to do at the next step anyhow.
  2. They figure it is a waste of time and effort for the banks to go after the homeowner since they are broke.

But the strange thing is it wouldn't cost the banks that much to bid LESS and file a Deficiency Judgment (I can see not letting somebody else win the place for less). I believe the bank would have something like 5 years to go after the money, or package it up and sell it to a debt collector.

Very strange that they are doing this.

Another thing to ask when a seller is considering a Short Sale, is if the homeowner has PMI. Private Mortgage Insurance covers the bank in the event of a loss in value and foreclosure (apparently not necessarily the entire loan amount). So watch out, it might be BETTER for the bank to foreclose and get the insurance, then it is to allow a loan restructure or a Short Sale, both of which as not insurable. Read this about PMI and Foreclosure)

Realtors, why do you think the banks are OVER bidding on these homes to buy them at the loan amount?

In California it seems like the bank can't go after the owner. Read this. Is that correct for VA too?

- Written by Frank Borges LL0SA- Broker FranklyRealty.com

 

*(50% of searchers misspelling this word as Dificiency Judgements, and forclosure) Other keywords: Bankruptcy, stop foreclosure, deed in lieu, Pre-foreclosure, 1099-C Debt forgiveness, loan modifications, Bank Liens, Maryland, Arlington, Alexandria, VA, DC washington, Maryland, MD.

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Anonymous
Anonymous
J

I have an answer for you in New York.

January 09, 2010 03:27 AM #81
Anonymous
Anonymous
J

The SOL in New York is 6 years from the date of last payment.  So, they 5 1/2 from now to sue you for DJ. 

2.  In your case, the answer is b.  It is clear they have nothing to collect if they get a judgement and it is expensive to get one.  DJs are rare and are used for people with a great deal of non retirement assets. 

3.  20 cents isn't too awful.  10 cents would be more reasonable.  Get the offer in writing.

In my case, I haven't paid the first or second in 1.2 years in a judicial state.  I haven't heard one peep from them in the last six months other than to foreclose which didn't take me anytime. 

In conclusion, you are from NYC (the city of taking advantage of others).  So, put a smile on and be glad that you are in the driver's seat for once.

January 09, 2010 03:31 AM #82
Anonymous
Anonymous
PK

I live in VA and have been dealing with Wells Fargo on a short sale for the past 6 months. I have a 2 loans, both by Wells Fargo. My first mortgage has approved the short sale but my second refuses unless they get a higher payoff than the first mortgage is willing to offer. Both are not willing to negotiate. The second mortgage suggest I could potentially request a settlement on which i'd probably pay 15 cents on the dollar owed which would clear me. Anyone have any experience to share on not being able to get approval on both loans? I assume it is worth settling to avoid the foreclosure mess and possible/imminent DJ? thanks.

January 14, 2010 05:36 PM #83
Anonymous
Anonymous
Tony

Most of these RE lawyers charging $400/hr arent worth minimum wage. Did they ever tell you that if they do file a DJ against you, just file for bankruptcy. Whats it going to hurt? Your credit? LOL.

January 24, 2010 01:53 PM #84
Anonymous
Anonymous
AinVA

I am so glad I stumbled across your site. I purchased my home in Fairfax, VA in 2006 for 315K; I put 75K down and got a fix rate 30 year mortgage at 6%. I made approx 70K a year at the time I purchased, had a credit score of 805. I was well qualified, well prepared. Then came the recession. I took pay cut after pay cut with my company until I was eventually laid off. I was out of work for 6 months. During that time I depleted all my savings staying a float in my home. I moved in with my now husband while continuing to make payments until I could find a renter for my home. I found a renter all was well for 6 months until she stopped making payments. The last unit like mine sold for 180K. This life investment has tuned into the absolute money pit! I am employed again but make a meager 45K a year. I spend every penny I own on this home in Fairfax. I have cashed in my 401K to make repairs to the furnace and the pipes and to maintain tax and increasing HOA payments. Despite never having missed or even been late on a payment for any bill for the past three years I have no more money to keep paying for this property. I am absolutely sick with panic everyday on a DJ coming down on me if I foreclosure. I am not even sure how I foreclose. Do I mail the keys to the lender and pray for the best. How does one go about something like this? Am I going to be riddled with debt collectors and garnished wages?

February 03, 2010 05:28 PM #85
Anonymous
Anonymous
Frank

AinVa, email me, I have some ideas

February 03, 2010 06:15 PM #86
Anonymous
Anonymous
Ben

This will be our last entry on this website--the last chapter in our saga, you might say, which began with our posts (#22&25) of June, 2008.  Not sure if anyone has been following our posts, but in the hope that our experiences can be a comfort and help (as many of the posts on here have been for us) to anyone going through what we've been through, we thought we'd close this out.

Last month HSBC sent us a form 1099-C for the 2nd trust, basically canceling any remaining liability/debt on our former home. Our attorney and our accountant both say we are clear now. We got the 1099-C on the first trust last year.

Prior to the real estate market going south in VA, we purchase some property in a rural part of SE Virginia, and are now in the process of building a home there (for cash!). This experience has really changed us for the better. We have no debt, plenty of money in the back, and a new peace that's hard to explain. The bank's behavior though all of this is no less baffling now, we're just glad to be out from under this mess.

For anyone going through foreclosure or a frustrating shortsale ordeal, our advice would be, get a good real estate attorney, a good accountant, and do what is in your own best interests. Don't worry or fear things that you can't control. Things will work out, and you'll be ok. The pain and hardship are never as bad as you imagine, so don't "catastrophize" about it; move on with your life, enjoy your life.

Frank, thanks for keeping this website up and thanks to all for all the helpful comments over the last few years. God is goood!

 

Ben

February 24, 2010 09:34 AM #87
Anonymous
Anonymous
Ben

This will be our last entry on this website--the last chapter in our saga, you might say, which began with our posts (#22&25) of June, 2008.  Not sure if anyone has been following our posts, but in the hope that our experiences can be a comfort and help (as many of the posts on here have been for us) to anyone going through what we've been through, we thought we'd close this out.

Last month HSBC sent us a form 1099-C for the 2nd trust, basically canceling any remaining liability/debt on our former home. Our attorney and our accountant both say we are clear now. We got the 1099-C on the first trust last year.

Prior to the real estate market going south in VA, we purchase some property in a rural part of SE Virginia, and are now in the process of building a home there (for cash!). This experience has really changed us for the better. We have no debt, plenty of money in the back, and a new peace that's hard to explain. The bank's behavior though all of this is no less baffling now, we're just glad to be out from under this mess.

For anyone going through foreclosure or a frustrating shortsale ordeal, our advice would be, get a good real estate attorney, a good accountant, and do what is in your own best interests. Don't worry or fear things that you can't control. Things will work out, and you'll be ok. The pain and hardship are never as bad as you imagine, so don't "catastrophize" about it; move on with your life, enjoy your life.

Frank, thanks for keeping this website up and thanks to all for all the helpful comments over the last few years. God is goood!

 

Ben

February 24, 2010 09:34 AM #88
Anonymous
Anonymous
Susan

If we wanted to protect a retirement home in case our current mortgage goes into foreclosure, could we?  Or would we have to sell it or get a lien against it for the DJ?

March 16, 2010 07:18 AM #89
Rainer
27,578
Billy Burke
The Auctionarium, Inc - Rancho Mirage, CA
CAI - AARE

Susan:

 

It all depends on wha State you are located in and how the mortgage or loan you are "shorting" was written.

March 16, 2010 08:21 AM #90
Anonymous
Anonymous
Attorney Rick

Angela,

I do not know if this advice may be too late for your sister -- but here goes:

If her ex-husband is refusing to obey the property settlement agreement, your sister should file a motion to show cause (contempt).  He is thumbing his nose at the court.  He may face fines or jail time by refusing to obey the divorce decree.  He is also exposing himself to civil liability for the damage that he is doing to your sister's credit.  This is more a family law matter than a real estate matter.

 

March 22, 2010 03:43 PM #91
Rainmaker
30,325
Joe Niece
REMAX Results - Eden Prairie, MN

Here is one that has not been commented on.  I have a short sale with BOA that I have negotiated.  BOA is on board.  The second in a non participating and not on my HAFA participating lender list.  I learned this week that they have the 136,000 dollar second mortgage 100% insured via Old Republic.  This give the second lender no reason to negotiate.  What I am trying to find out is if anyone know how long the term might be on a MI/PMI policy from Old Republic.  I believe that the lender buys the insurance for a certain term.  I want to know if it might be five years.  Does anyone know who might know how long these policy terms might be on a second mortgage?

 

Minnesota Foreclosure Minnesota Short Sale

April 22, 2010 03:52 PM #92
Anonymous
Anonymous
John

Why has this blog stopped?

August 24, 2010 08:22 AM #93
Anonymous
Anonymous
John

If anyone is still listening.....any good refernces for attorneys and CPA's?  I am in process of short sale and want to make sure there is no DJ.

 

Also what is the best way to negotiate the deficiency and possibly pay it off with 15% so deficiency is forgiven?

 

Thanks much

August 24, 2010 08:25 AM #94
Rainmaker
136,271
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

John, Ask a lawyer, but first you might try and go for a complete wipe out of the DJ. ANd wait to see if they try and keep you owing the $

August 24, 2010 09:13 AM #95
Anonymous
Anonymous
Dave In VA

Hi everyone. I hope this blog is still active as there hasn't been any new posts here since August. Here is my home mortgage nightmare:

In 2005 I bought a 1890 Victorian home in Danville, VA to retore and live in. It was a foreclosure and the bank was taking sealed bids. Unfortunately for me I got the house. It appraised for $300k at the time and I paid $100k cash (my life savings). After living in it a while a found it needed much more extensive work than I realized even though I am an experienced at working on old houses and even had a home inspection prior to closing. The house had undisclosed fire damage that had been hidden behind new sheetrock work. I found out the bank wasn't liable for the non-disclosure of hidden damage because of it being a foreclosure. I ended up taking out a $90k first mortgage at 6.57% and that all got eaten up fast just in roof and structutal repairs. I felt I was still doing ok as the house still appraised for $300kish. I then took out an $50k equity loan to finish the rest of the house after which Wachovia (now Wells Fargo) said they would refi me both loans into one. As I was nearing completion the market took a dump and now Wells Fargo says I no longer quality for a refi. I applied for the Hardship Loan Mod program and they strung me along for a year before telling me I don't qualify. I have had the house on the market for 3 years with 3 different Realtors. I only got one offer which became a contingency contract. After several months and 2 contract extensions they gave up because they couldn't get their house sold. In the meantime I've ended up on Social Security Disability for cancer and get about $1800/month. I was lucky enough to get lung cancer even though I am a life long non-smoker. With all expenses trimmed down on a good month I spend $1900/month and if something unexpected comes up (like the exhaust system falling off my car last week) then its more. I've depleted my savings, have no credit cards but so far I am not behind on anything and my Credit Rating is still around 800. Wells Fargo won't work with me though they did offer me a "Deed in Lieu" but only if I pay off the $50k Equity loan which obviously I can't do. This last month I am down to just $18 to my name and will certainly start falling behind. I have already sold my second car (the better one) and all my antiques and furniture and am living on a mattress on the floor and card tables for the computer etc. I had been keeping even by selling my belongings but not much left of any value to sell. I have also now been diagnosed with Prostate cancer as well so more medical copayments ahead over and above my current ones. Fortunately I have Medicare with the SSD but still have the copays. I owe $140k-ish and the appraisel that the contingentcy buyers got on the house showed it now worth $240k. I think the bank wants it to go into foreclosure as they have a chance of getting their money back. I had lowered the price so it would just pay the mortgages and the Realty fees and I'd get nothing but no takers. Anyone have any advice?

Thanks,

Dave

October 31, 2010 04:56 PM #96
Anonymous
Anonymous
kay

 

Hi all-

 

This thread is extremely insightful!. I have a house currently going to FC with Bank of America in northern VA.
I purchased the house in 2006 and within in 6 months of me living in the home, the market begin to nose dive. in 2006 I paid 226k for the home however in 2010 prince William county valued the property at 70k. now in 2011 I am sure it’s worth even less. i have 2 loans (80/20 split) the larger loan is behind  however the smaller loan 20% of the purchase price is up to date. how does foreclosure work in this instance?  does the bank eat any of the loan amount since the value of the house has fallen  more than half of the purchase price?  how can they come after me for hundreds of thousands of dollars when the home is not even valued at the purchase price? I guess that doesn't matter?

 

 

October 17, 2011 11:58 AM #97
Rainmaker
136,271
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

Kay,

I am not a lawyer. Either loan can force a foreclosure.

When you say "eat" , the bank will "lose" by not being able to recoop their investment in you.

You should be trying a short sale now, it can help your credit and MAYBE you can negotiate away the deficiency judgement. If you let it go to FC it will be much harder.

Any why can they come after you? Because that is the amount you owe. I don't think there was anything in the initial contract that said "You will not have to repay this loan if home prices go down."

October 17, 2011 12:04 PM #98
Rainer
333,062
Paul Gapski
Berkshire Hathaway / Prudential Ca Realty - El Cajon, CA
619-504-8999,#1 Resource SD Relo
 

yes they look so nice but Foreclosures are such tough on to stomach.

November 21, 2011 03:21 PM #99
Anonymous
Anonymous
Virginia

Hello to everyone,  I am hoping that someone can give me some suggestions.  My husband and I purchased a house in VA.with Countywide with a first and a HELOC because our other house had not sold yet. The purchase price was $525,000.  By 2010, we started pursuing a loan modification with them, they now became the infamous Bank of America.  We sent in a hadship letter and the whole packet of what was requested about 6 times, even with the help of real estate friends.  Nothing, except a letter to us saying that our mortgage was going up $500. a month.  We decided to do a strategic walk away, not paying anymore.  After a year, the house was sold by a trustee on the courtroom steps for $304.000 in July of 2011. We moved quickly, into a rental.  About 6 months later, we start getting phone calls from Greentree demanding the $57,000 they are telling us we owe.  BOA separated this loan to Greentree just before the foreclosure.  Now we have gotton a letter from a law firm EPPS in VA Beach representing Greentree.  Obviously they may be going for a DJ, and its making us sick.   We don't own anything else.  How far can they go with this and is this the new trend?  Thank you, Virginia

August 29, 2012 05:49 AM #100
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Rainmaker
136,271

FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com

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