After Foreclosure You Might Still Owe Your Lender Money: "Deficiency Judgments" in Illinois

by
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC



When the lender sells your home at a foreclosure sale, the sales price is often less than the amount owed to pay off your mortgage. The difference between the lower sales price and the total mortgage balance is called the "deficiency".

For example: If your mortgage is $300,000 and the foreclosure sale brings $200,000, then the remaining $100,000 is the deficiency.

In Illinois, the lender files a lawsuit against you for the remaining $100,000 and gets an in personam deficiency judgment or an in rem deficiency judgment.

When the lender gets an In Personam Deficiency Judgment... it can collect the money from you personally, for example, by garnishing your wages, seizing your bank accounts, or confiscating non-exempt assets. This type of judgment is available to a lender only if it personally served you with the complaint. Or if you appeared in the foreclosure action.

You can erase your obligation to pay the in personam deficiency judgment through a Chapter 7 bankruptcy. If you file a Chapter 13 bankruptcy, you may have to pay part of the judgment in your repayment plan.

When the lender gets an In Rem Deficiency Judgment... it cannot collect the money from you personally because it is not a personal judgment. An in rem deficiency judgment is against the real estate, not you. It becomes important only if you redeem the property, which means if you reclaim the property by paying the full amount owed, plus costs and interest. If you redeem the property, the in rem deficiency judgment allows the lender to place a lien against the property for the balance that remains after you pay the redemption amount.

In Illinois, you can redeem a home mortgage for (1) up to seven months after the date the lender serves you with the complaint, or (2) up to three months after the deficiency judgment is entered, whichever is later.

Also - you have an additional 30-day right to redeem your property following the sales date:

  • IF the buyer at the foreclosure sale was the lender, and
  • IF the sales price was less than the total amount owed, that being the amount of the judgment plus expenses to the redemption date
Lawsuits From Junior Lenders

In most cases, when a senior mortgage holder forecloses, any junior lienholders - such as lenders of second mortgages and home equity lines of credit - lose their security interest in the real estate. Even so, the junior lienholder can still sue you personally on the promissory note you signed at the time you took out the second mortgage or other loan.

Deed in Lieu of Foreclosure

A lender may agree to accept a deed to property instead of going through the costly and time-consuming process of foreclosure. This is called a deed in lieu of foreclosure. In this case, the deficiency amount is the difference between the mortgage balance and the property's fair market value.

A lender may not get a deficiency judgment after a deed in lieu of foreclosure unless you sign an agreement at the same time as the deed in lieu of foreclosure.

Short Sale

You have entered into a short sale when you sell your home for less than the remaining mortgage balance on your property and used the proceeds to pay part of the mortgage balance. The lender may sue you for the remaining balance due on the mortgage and get a deficiency judgment against you. To avoid this, you must get a short sale agreement stating that the lender waives its right to a deficiency.

Please contact my Chicago law office if you have any questions about deficiency judgments, foreclosure, or filing for bankruptcy in Illinois. I would be pleased to give you further information on how bankruptcy can erase debt, receive protection from credits, wage garnishment and liens. As a Chicago money lawyer, my practice specializes in helping people in debt and businesses with serious financial problems. For help with credit repair, tax arrears, loan modifications, credit card debt, bankruptcy, foreclosure, liens, or any other financial problems, call 312-969-0730 or email rich@chicagomoneylawyer.com today.