If you or someone you know was involved in a foreclosure since 2007, the news that Freddie Mac and Fannie Mae are not seeking deficiency judgments is not good news. A deficiency judgment is a legal action that bank can take against a former mortgagee to reclaim any unpaid portion of the foreclosed mortgage. Difference between the balance of the mortgage at the time the home was foreclosed and what the property actually sold for is what would be included in the judgment.
Probably the most misleading information that was spread during the recession was that once a home is foreclosed, the “bank” cannot pursue any further. This is absolutely false (except in cases involving bankruptcy) and North and South Carolina both allow for deficiency judgments on mortgage debt.
Bank of America, Wells Fargo, Chase and Citi have all issued statements saying that they do not intend to pursue judgments on foreclosure debt but that extends only to the debt that those banks actually hold. In most cases, Bank of America, Chase, Citi, and Wells were simply servicing a mortgage (collecting payments) on a Fannie or Freddie loan. So while your mortgage statement may have said Wells Fargo, you could receive a judgment.
So what can you do?
If you sold your home through a short sale, you will want to dig through your settlement letter to ensure that you were granted a waiver of the deficiency. Don’t assume that just because you receive a notice from a collection agent, you owe the debt. If you do receive notice, contact an attorney to uncover what your recourse might be. If you received a 1099-C for the forgiven debt, that is also a sign that the debt has been forgiven.
If your home was foreclosed and you did not enter into bankruptcy, you may be liable for the debt. An easy way to figure out if your previous mortgage was owned by Fannie or Freddie is to look back through the prior deed on the property. If the owner was or is Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corp (Freddie), you may want to consult with an attorney.
If you declared bankruptcy and your mortgage debt was included in your bankruptcy, chances are you are in the clear. If you receive a notice of a judgment, contact your bankruptcy attorney right away to have the matter resolved.