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Protect yourself from a deficiency judgment after foreclosure

by Dorota Trzeciecka on August 26th, 2011

There are several steps you can take to either avoid, reduce,  or protect yourself from personal liability for a deficiency judgment:

  1. Avoid liability by preventing foreclosure from happening in the first place.  Explore alternatives to foreclosure.  Loan modification, short sale, and Deed in Lieu of Foreclosure (commonly known as DIL) are the most common ones.   But, there are other workout options available.
  2. If the deficiency judgment is unavoidable, you can reduce your liability by offering to settle the deficiency for a lower amount.  If the loan servicer accepts your offer, make sure that you ask them for a full satisfaction of the deficiency judgment, if one has already been entered.  If you’re negotiating  a settlement agreement to settle the deficiency before the judgment is entered,  ask for a release of all claims relating to and arising out of the foreclosure lawsuit.
  3. If the loan servicer is unwilling to grant your request for Deed in Lieu of Foreclosure or for a short sale, and the foreclosure is your only option, one sure way to protect yourself from personal liability for deficiency is to file for bankruptcy protection.  Upon surrendering of the property to the bankruptcy trustee, your personal liability for the loan, including any deficiency, may be discharged in bankruptcy.