How Do Mortgage Lenders Collect Deficiency Judgments?
Mortgage creditors can garnish your wages, attach bank accounts, or file liens against your property in order to collect a deficiency judgment after foreclosure.
Once a mortgage lender has obtained a deficiency judgment against you, it can then proceed to collect on that judgment. If the mortgage creditor was a second lien holder in the foreclosure, it is more likely they will pursue collection efforts, especially if they received little or nothing from the foreclosure sale. This article explains the ways a mortgage lender can collect the deficiency judgment.
(Learn more about deficiency judgments after foreclosure, including when a lender can get one and the laws in your state.)
The mortgage lender can get a judgment lien against your personal property and other real estate that you own within the county, giving it a security interest in that property. This means the bank can foreclosure on that other real estate -- it might do this if you have equity and the bank thinks it'll get enough money to make the effort worthwhile. Even if you own real estate in another county, the mortgage creditor can transfer the judgment to the county where the real property is located.
With a deficiency judgment lien, the creditor also has an interest in any personal property that you owned at the time it filed the judgment lien (subject to any available exemptions you may have). This includes jewelry, equipment, business assets, art, antiques, electronics, and any other valuables.
For more information on judgment liens, see our Judgment Liens topic area.
Just like any other lien creditor, the mortgage creditor can take part of your employment income (often called garnishing your wages). If creditor knows where you work, it may go the garnishment route.
There are some limits as to how much money can be garnished from your income, since you are entitled to exempt some of your personal income. Under federal law, creditors can usually only garnish up to 25% of your take home pay (less for low-income wage earners). Some states have more stringent rules. There may also be limits on how long they can continuously take money out of your paycheck.
To learn more about how wage garnishments work and the wage garnishment limits in your state, see our Wage Garnishments & Attachments topic area.
Bank Account Levies
The mortgage creditor may also attempt to levy your bank accounts. This may be relatively easy for them to do if you had previously paid the lender with checks drawn on an open bank account. As with your other assets, you may be entitled to exempt a portion -- if not all -- of the funds in your account. (Learn more about using exemptions to protect property.)
(Learn more about how creditors levy bank accounts.)
Will the Lender Try to Collect the Deficiency?
Just because a mortgage creditor has a deficiency judgment does not mean it will try to collect. Many creditors find that it is just not worth the cost and expense to pursue collection, and instead write-off the debt and issue you a 1099-C. If this happens, you might owe taxes on the forgiven amount. (To learn more, see Will You Owe Income Taxes on Forgiven Mortgage Debt?)
If the Lender Does Try to Collect
If the creditor thinks that you are collectible -- for example, because you have steady income or assets -- it may take further collection action on the deficiency judgment. If you cannot successfully protect yourself and your assets using defenses and exemptions specific to wage garnishment, levies, attachment, or foreclosure, consider filing bankruptcy. If bankruptcy is not an option for you, you may be able to work out a payment agreement with the creditor.
Vacating Default Deficiency Judgments
If the creditor had taken a default judgment against you and you were unaware of the deficiency case or were unable to defend yourself, you may be able to get the court to vacate (remove) or modify (change) the deficiency judgment. You must act quickly and have acceptable legal and factual reasons for this request. For example, the creditor waited too long to take a deficiency judgment and violated the statute of limitations, which is often shortened in mortgage deficiency actions. Because this can be a complicated, difficult procedure, you should consult with a local attorney or legal aid office immediately.