I have recently gone through a foreclosure and I had a second (home equity) on this home also. The first mortgage company Countrywide has been very helpful and understanding. I had sent a hardship letter to both companies and requested last year that the second mortgage company (State Farm), even separate the loan and I would be responsible for that. But they refused to cooperate, which put the house above market value and it did not sell, hence the foreclosure. Now State Farm has sent me a letter everyday since the foreclosure in March and has now sent an adjuster to my home where I now live. Do they have a legal right to do this and can they sue me, (if so why haven’t they yet)?
In our current housing market, in which housing prices are rapidly decreasing while many consumers’ mortgage payments are increasing, homeowners across the country are facing the same financial trouble you are currently experiencing. The problem with owing more on one’s home than the property is worth is that, if the property is forced into foreclosure, the consumer may very well end up owing money on her mortgage notes even after she no longer owns the property.
When a home is foreclosed upon by the first mortgage lender, as happened in your case, the lender will usually sell the home at auction, which often brings significantly less money than the actual value of the home. The lender will apply the sale proceeds to its loan; if there is any money left over, it will then give that money to any secondary lien holders, such as home equity lenders or second mortgages. If the sale proceeds are not sufficient to pay the entire balance owed on all secured loans, the consumer may be liable for the difference, which is called a “deficiency balance.”
Some lenders, such as your first mortgage, will decide to forgive any deficiency balance, while others, such as your home equity lender, will decide to pursue the borrower for the collection of the deficiency balance. In some states, such as California, lenders are prohibited from collecting on deficiency balances resulting from loans used to purchase a primary residence. However, many other states allow lenders to collect on deficiencies to the full extent of the law. Because of the differences in state laws regarding deficiency balances, I strongly encourage you to consult with an attorney in your area to determine if you are legally liable for the deficiency balance claimed by State Farm, and if you are liable, what steps you can take to stop these collection efforts. For more information about foreclosures, I invite you to visit the Bills.com Foreclosure page.
Depending on your state laws regarding the collection of deficiency balances, your home equity lender may be able to file a lawsuit against you for the collection of this debt. Since I am not licensed to practice law in your state, I cannot tell you what action the creditor can legally take against you. You should keep in mind that even if the lender can sue you, it does not necessarily mean that it will decide to sue you. Frequently creditors choose alternative collection tactics, such as hiring collection agencies, over litigating delinquent accounts; these decisions are based on many factors including the cost and practicality of filing suit, and if the creditor believes that filing suit will increase its chances of collecting the debt. For example, if the creditor thinks that you are likely unable to pay the debt, it may decide not to sue you simply to save money. However, if the creditor does sue you, it may be able to obtain a judgment against you, which could lead to wage garnishment, bank levies, and/or property liens, depending on your state laws. Again, I encourage you to consult with an attorney in your area to determine if the creditor can sue you, and if so, what the potential consequences for you could be.
If you find that you are legally obligated to pay the deficiency balance claimed by your equity lender, you may want to contact the creditor to discuss establishing a repayment plan to stop the collection activity and to prevent any further legal action against you. Hopefully the lender will be willing to work with you in resolving the debt. However, if the creditor will not work with you on reasonable terms, you may want to consider filing for bankruptcy protection to prevent the creditor from pursuing legal action against you. For example, if you are able to file for Chapter 7 bankruptcy protection, you may be able to discharge this debt altogether, allowing you to free yourself from this burdensome obligation. If you are considering bankruptcy, you should definitely speak with an attorney to determine if bankruptcy is a viable option for you. To read more about bankruptcy, I encourage you to visit the Bills.com Bankruptcy page.
I understand how frustrating it must be for you to have gone through the painful foreclosure process only to now be faced with further collection actions by your home equity lender. Thankfully, several options are available to help you resolve this debt.
I wish you the best of luck, and hope that the information I have provided helps you Find. Learn. Save.