Will I be responsible for paying any deficiency to the lender after a foreclosure is completed on my residence?

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Will I be responsible for paying any deficiency to the lender after a foreclosure is completed on my residence?

Current value of home is $160,000 and bank has offered to pay for $3000 (to us) cash and key and $6000 to my SBA loan to release their interest. The payoff is $154,000. We are claiming bankruptcy and wanted to know if we should include the foreclosure in the bankruptcy to avoid tax consequences.

Asked on July 28, 2011 Georgia

Answers:

MD, Member, California Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

You should include whatever you can in the bankruptcy and let the trustee figure it out with you, especially if you are filing chapter 7 and not something that will require payback or reorganization. Further, keep in mind though that once you file for bankruptcy and if you file prior to full foreclosure process has occurred, you may be stalling the foreclosure sale to begin with. Bankruptcy acts as a stay on all proceedings and debts. Your lender/servicer cannot necessarily pursue or complete the foreclosure sale without leave of court to do so. If bankruptcy sounds like an option to you for this reason only (i.e. deficiency), talk to a bankruptcy attorney or legal aid and see if deficiency judgments are allowed in your state. In Georgia, I believe if the court allows for it, a deficiency judgment is allowed but it cannot be that the bank merely shows you owe more, it has to show the property sold for fair market value and not simply a bargain basement price.


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