After a home is foreclosed on, what are the borrower’s legal responsibilities regarding repayment?

UPDATED: Sep 17, 2014

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After a home is foreclosed on, what are the borrower’s legal responsibilities regarding repayment?

In order to purchase a house 8 years ago, special financing consisting of 2 mortgage loans were taken out. However, the house foreclosed on 5 or 6 years ago. I am now being persued by a collection agency who is threatening a lawsuit and wage garnishment saying that I still owe for the 2nd mortgage. How is this possible if the house was foreclosed? Wasn’t the house collateral for the 2nd mortgage? Do I legally still owe this 2nd mortgage? What are my options?

Asked on September 17, 2014 under Real Estate Law, Virginia


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

Foreclosure does not necessarily eliminate all mortgages. When the house is foreclosed upon, it will then (at some  point) be sold; when it is sold, first the expenses of the foreclosure and sale are taken out of the proceeds; then the remainder of the proceeds is applied against the loans. It will be applied first to the 1st mortgage (the higher-priority mortgage) then, only if there is something left after the first mortgage is paid in full, will the balance be applied to the 2nd mortgage--and that balance may or not be enough to fully pay the 2nd mortgage. If a mortgage is not paid in full--or if, as is often the case with 2nd mortgages, it is not paid at all (since often, nothing is left after expenses and paying down the 1st mortgage)--the lender can come after you for any unpaid amount. In the case you describe, it is likely that the foreclosure did not pay off the 2nd mortgage; if that's the case, you  are still liable for the unpaid amount and they can sue for it. If they win, they could take collections efforts, including wage garnishment. You have the right to see the documentation regarding the foreclosure, regarding how the proceeds of the home were applied, and regarding payment (or not) of the 2ncd mortgage, to see if you truly owe this money; but if turns out you do, you may not have any good defenses to the debt if all the paperwork, filing, etc. was done correctly. If that's the case, you may have to either negotiate/settle the debt for something or some payment plan you can make; or else consider bankruptcy. However, before doing any of that, retain an attorney to review the situation with you and represent you against the collections agency.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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