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Anti-Deficiency Law May Protect Home Owner

Ask the Real Estate Lawyer: Real Estate Law Q&A

REM #LAW 724

By Ilyce R. Glink and Samuel J. Tamkin

Summary: A ThinkGlink reader responds to an article written about deficiency judgments on foreclosures. Sam and Ilyce explain that some states have an anti-deficiency law the can help a homeowner who's property is being foreclosed.

Q: Your recent column, carried in the Santa Rosa Press Democrat, discussed deficiency judgments on foreclosures.
(article continues below useful links)

However some states have anti-deficiency judgment laws. I found the following on an on-line legal site:

“Some states have anti-deficiency laws which protect purchasers of residential real property used as primary residence. If the purchaser fails to make the mortgage payment the property is foreclosed and title is obtained by the lender through a legal procedure.

“The property is then typically sold to pay the mortgage and a deficiency between the sale price and the outstanding balance of the mortgage usually exists. Under anti-deficiency laws, if the mortgage is a purchase money mortgage for the purchase of a dwelling occupied by the purchaser, the purchaser will not be held responsible for any deficiency.

The lender can only recover the property and the proceeds of a subsequent sale. The purchaser does not pay any deficit between the sale proceeds and the outstanding loan balance. This allows the purchaser to walk away from a property without owing a deficiency judgment amount. Anti-deficiency laws typically provide no protection for second mortgages or home equity lines. Also, there is no protection when the property is not used as the primary residence of the purchaser.”

What do you think?

A: Thank you for the information you provided. It appears to come from the legal website www.enotes.com.

While anti-deficiency laws will protect a homeowner in some cases, the vast majority of Americans have recently obtained two loans in the purchase of homes, often referred to as a “piggy-back mortgage.”

The first mortgage would have been for 80 percent of the purchase price with all or a portion of the balance of the purchase price obtained by means of a home equity line of credit or second mortgage.

If the first loan is foreclosed and the amount of the sale is enough to only pay off the first lender, the second lender will be entitled to sue the owner for the value of its loan. Many anti-deficiency laws won’t protect the homeowner for amount owed on the second loan.

Many states have different rules regarding deficiency judgments and they may apply differently to each case. But in those states that have anti-deficiency judgments and they apply to the particular case, the homeowner would benefit in having the debt wiped out even if it was for more than the value of the home.

Thanks for your letter.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website www.thinkglink.com