Tuesday, February 9, 2010

Walking Away: The Judgment that Cripples

It is my greatest hope, particularly for those close to retirement, that your house is secure, with any luck close if not already paid for and there is no chance of foreclosure in your future.  But things happen and fates change.

Last Friday, on MomsMakingaMillion radio with Gina and Kat, the topic of deficiency judgments was discussed in the MoneyTips section of the show.  I know something about foreclosures and wondered if what was being discussed could be prevented and how.

In a previous article here, we looked at the possibility of walking away from your home. The obligation, we argued is one that involves two parties: lender and the borrower.  Every financial contract, we all know comes with obligations.  But exactly how those obligations are applied can vary from state to state.

Gina, who resides in Nevada, gave fair warning to the homeowners in her state about the pitfalls of owing money long after you have been foreclosed.  Called a deficiency judgment (the only states that have no right for the lender on the books are Massachusetts, Mississippi, West Virginia and Delaware), this action theoretically allows the lender to pursue you for the balance of the loan due after the house has been foreclosed, .  While on the surface, this seems like an additional blow to your already decimated financial world, but there are steps that must be taken and certain rules that protect you.

Do you know about deficiency judgments?

Paul Petillo is the Managing Editor of Target2025.com and a fellow Boomer.