Can My Mortgage Company Garnish My Wages After Foreclosure?

If you still owe money after the foreclosure of your home, can the lender garnish your wages to get the rest?

If you've lost your home to a foreclosure but the foreclosure sale didn't cover the amount you owed the lender, the lender can potentially garnish your wages to collect the remaining balance on your loan after getting a "deficiency judgment."

However, some states have a law prohibiting lenders from getting a deficiency judgment and collecting the loan balance after a mortgage foreclosure. So, you won't face a wage garnishment if you live in one of those states.

How Do Mortgage Foreclosures Work?

About half of the states require your mortgage company to sue you in state court to foreclose. These states are often called "judicial foreclosure states." The bank files a lawsuit against you and, if it wins, the judge awards a judgment for a specific dollar amount. The judge then gives the bank the right to sell the property. Usually, the bank buys the home at the auction using a credit bid when no one else offers to buy the property.

If your state doesn't require mortgage companies to sue in state court to foreclose, then you live in what's sometimes called a "nonjudicial foreclosure state." (However, even in nonjudicial foreclosure states, judicial foreclosures are permitted.) Nonjudicial foreclosure states allow the bank to take the property back using an out-of-court process.

Deficiency Judgments After Foreclosure Sales

If your property sells at a foreclosure sale for more than what you owe, you're off the hook and owe nothing on the debt. But sometimes, the property sells for much less than what you owe and results in a "deficiency."

A "deficiency" is the difference between what you owe on your mortgage, including attorneys' fees and foreclosure costs, and the amount received from the foreclosure sale.

What You Owe (Minus) Sale Proceeds (Equals) Deficiency

For example, say you owe the mortgage lender $500,000 and your home sells at a foreclosure sale for $480,000. The deficiency is $20,000. ($500,000 - $480,000 = $20,000.)

What Is a Deficiency Judgment?

If the sale amount isn't enough to cover what you owe, the mortgage lender might be able to get a deficiency judgment (either as part of a judicial foreclosure or after a nonjudicial one) and then try to collect the deficiency. Whether it can do so depends on several factors like whether deficiency judgments are allowed under state law. If the lender can pursue collection of the remaining balance, it can usually do so by garnishing your wages.

    State Law Sometimes Prohibits Deficiency Judgments

    State law sometimes prohibits deficiency judgments. For example, state law might not allow a mortgage lender to get a deficiency judgment after a nonjudicial foreclosure.

    Garnishment After a Deficiency Judgment

    But if the mortgage company elects to sue you in state court to foreclose or sues you for a deficiency judgment after a nonjudicial foreclosure, state law might permit the lender to get a deficiency judgment. After the lender gets a deficiency judgment, depending on the circumstances, it might be able to garnish your wages to collect on the balance.

    Preventing Wage Garnishment After Foreclosure

    If you face the possibility of wage garnishment after a foreclosure sale, you might be able to prevent the garnishment by claiming an exemption or filing for bankruptcy.

    Talk to a Foreclosure Lawyer

    Deficiency judgment laws vary from state to state and can be complicated. If you're facing a foreclosure, it's crucial to understand how the law works in your state. To find out if your mortgage lender is likely to get a deficiency judgment against you and how the foreclosure process works, talk to a foreclosure lawyer.

    To learn more about using exemptions to prevent or reduce wage garnishments, talk to a debt relief lawyer.

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