How Deficiency Judgements Work
In the United States, 1 in every 2043 homeowners falls behind on their mortgage payments and loses their home through foreclosure. While losing your home is a stressful ordeal, the nightmare can continue if the foreclosure sale price is less than the amount remaining on your mortgage—known as a “deficiency.”
For example, let’s say the debt owed is $300,000, but your home only sells for $200,000. The deficiency is then $100,000. In Illinois, foreclosures are judicial, which means they are administered through the state court system. The lender can file a lawsuit against the borrower and obtain a judgement: either an in personam deficient judgement or an in rem deficiency judgement
In Personam Deficiency Judgement
An in personam deficient judgement allows the lender to collect the deficiency amount from the borrower by garnishing wages, collecting from a bank account or taking non-exempt assets, such as valuable collections, family heirlooms and investments. The only way to get out of an in personam deficient is to file for bankruptcy. Chapter 7 bankruptcy will discharge the judgement completely, while Chapter 13 may require you to repay part of the debt.
In Rem Deficiency Judgement
An in rem deficiency judgement is a judgement against the property itself. It’s usually entered as part of the foreclosure judgement and comes into play if the borrow redeems the property. Redemption occurs when the homeowner reclaims the property by paying the amount owed, as well as certain additional costs and interest. If the borrower redeems, the in rem deficiency judgement preserves the lender’s right to a lien on the property for the debt balance that remains. In Illinois, the redemption period for residential mortgages is 7 months after the date of complaint, or 3 months after the judgement is served, whichever is later.
If somebody is trying to collect on a deficiency, speak to one of our Chicago consumer lawyers at Atlas Consumer Law immediately. It may be possible to fight the collection efforts or limit how much can be collected, especially if a creditor takes a default judgement against you and you were unaware of the deficiency case. You must act quickly though.
Contact us online or by telephone at (312) 313-1613 to speak with an attorney.