Worried About a Deficiency Judgment? Negotiate it Away

So far in the foreclosure crisis and resulting meltdown W S Kimball Champions the financial markets, there does not seem to have been an increase in the number 1970 Topps baseball cards banks seeking out deficiency judgments against homeowners. On the contrary, the market has really only seen increases in the number of banks attempting to unload Captain Action Presto Magix mortgages onto the government.

As a result, it may be easier to get a loan modification through the government, if the loans are eventually taken over (like with Bear Stearns donate a car AIG mortgages). But banks have not increased their activity in pursuing foreclosure victims for deficiency judgments.

If homeowners are planning on using the "produce the note" defense to avoid a deficiency judgment, though, they should do that in their defense to the bank's foreclosure lawsuit. Immediately upon being served with the paperwork, they can file a Motion for Extension of Time to request an additional 30 days or so from the court to put together their answer. Then, based on the contents of the complaint and the bank's actions up to that point, borrowers can file a Motion to Dismiss based on the bank not providing the original note.

In their answer to the complaint (which would not have to be filed until after the Motion to Dismiss has been ruled upon), homeowners can claim the bank has suffered no losses because of its bailout by the government. To sue for foreclosure, the bank must suffer a loss on the contract -- it can not transfer the note to the government and still sue for recovery of damages.

This defense may not have been used yet, and how far it will get homeowner is debatable, but the longer borrowers can drag out the lawsuit, the better chance they might have to force the bank to negotiate a loan modification, deed in lieu, or other solution.

If nothing else, homeowners can probably hire an attorney for a few thousand dollars and get an extra 6-12 months to live in the foreclosed house mortgage-free. By then, the bank may be willing to negotiate a deed in lieu just to get control of the property and move the owner out of the house.

In those negotiations, borrowers can specifically demand that the bank give up any right to sue them again for a deficiency judgment or any other damages. Although the deficiency may not be a problem, this route may give homeowners the peace of mind they are looking for.

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