If you've lost your home to a foreclosure but the foreclosure sale didn't cover the amount you owed the lender, can the lender garnish your wages to collect the remaining balance on your loan? In most cases, a creditor must get a judgment against you before it may garnish your wages. A few types of creditors can garnish wages without first getting a judgment, but mortgage companies and other home-loan lenders don't fall into this category. And, some states have a law prohibiting lenders from collecting the remaining loan balance after a mortgage foreclosure.
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." (Though, 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.
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." 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. For example, state law might not allow a mortgage lender to get a deficiency judgment after a nonjudicial foreclosure. But, if the mortgage company elects to sue you in state court to foreclose on the property, state law might permit the lender to get a deficiency judgment and the opportunity to garnish your wages to collect on the balance.
If you face the possibility of wage garnishment after a foreclosure sale, you might be able to prevent the garnishment by:
To learn more about using exemptions to prevent or reduce wage garnishments, talk to a lawyer.