CCCS Cautions Consumers About Deficiency Claims

The Consumer Credit Counseling Service (CCCS) of Greater Atlanta has released an advisory warning clients that they may be liable for paying deficiencies if they decide to ‘walk away’ from their home or sell the property in a short sale.

‘My advice is that no homeowner should ever simply 'walk away' or 'turn in the keys' without receiving a document that absolves them of all liability,’ says Frank Alexander, a professor of law at the Emory University School of Law and a member of the board of directors of CCCS of Atlanta.

‘A borrower facing a foreclosure should assume that a post-foreclosure lawsuit is possible,’ he adds. ‘In addition, no homeowner should ever participate in a short sale without receiving a signed agreement clarifying that all outstanding debt has been forgiven. The same is true for all deed-in-lieu of foreclosure resolutions.’

Before the current mortgage crisis, mortgage companies usually did not sue homeowners after foreclosure or short sales, because many borrowers had little income and few remaining assets, CCCS of Greater Atlanta explains.

The increased popularity of strategic defaults, however, means mortgage companies may file more lawsuits to try and recoup their losses. In addition, Alexander says that mortgage companies are often selling promissory notes for the amount owed on the mortgage, at steep discounts, to collection agencies. The collection agencies will likely pursue the former homeowner to collect the amount owed.

Because some borrowers who decide to ‘walk away’ from their homes still have good incomes, Alexander predicts an increase in the number of lawsuits filed by mortgage companies to obtain garnishment of a homeowner's wages.

"Garnishment actions are going to become quite common in late 2010 and throughout 2011 and 2012,’ he says.

SOURCE: CCCS of Greater Atlanta


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