Dangerous Myth: “Lenders Cannot Pursue a Deficiency Judgement after a Non-Judicial Foreclosure”
Right now, I want to eliminate a common misconception regarding what people, even lawyers, have been claiming are “benefits” of allowing your property to go into foreclosure:
Bad advisor: “If you can’t get the lender to waive the difference in a short sale or deed-in-lieu of foreclosure, just have the lender foreclose on your property. In a non-judicial foreclosure, the lender won’t be able to pursue you for the difference. Although they may report a foreclosure on your credit report, at least you’ll be able to walk away owing nothing to your lender.”
Friends, this is simply not true!
Click this link: https://www.courts.wa.gov/content/Briefs/A08/798753%20sarich%20respondent.pdf
The above link leads to an actual case (Sarich Vs. Beal) which took place in the WA State Court of Appeals in 2007. This case specifically addresses the junior lienholder’s ability to pursue a deficiency judgement in a non judicial foreclosure. Read the document and never again consider letting your property go into foreclosure.
In summary, it was decided that junior lienholders (2nd purchase loan, HELOC, etc.) can pursue you for a deficiency at foreclosure, even in a non judicial foreclosure proceeding.
Keep in mind that exemptions exist. You may want to ask an attorney or a local HUD counselor what the statutes of limitations with respect to mortgage deficiencies are in your state.
However, just because your property enters ”non judicial foreclosure,” does not automatically mean that the junior lienholders are stripped of their rights to pursue the deficiency. Keep this in mind before considering allowing your property to go into foreclosure.
Until next time,
Kevin
I think you are not be entirely clear about some key points of the Sarich case. That case involved three different deeds of trust and their corresponding obligations. With respect to the obligations that do in fact go into non-judicial foreclosure, it is true that those debts are satisfied through that process. But it does get more complicated with multiple DOTs.
Would you agree that the non-foreclosing lender may sue for a breach of contract based on the promissory note? This possibility alone justifies the homeowners need to carry out extensive due dilligence prior to allowing their property to enter foreclosure, even non judicial
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