I've talked to you guys before about something and got good responses, so figured I would try this. I can't find a clear answer through searching online so here goes. If a house is foreclosed on and the amount that was paid through auction does not cover 100% of the owed debt are you(the person that had the original loan) legally obligated to pay the remaining balance off? It all sounds legit really, I just want to be absolutely sure before we agree to start paying this off. I'm not arguing it isn't our debt, just want to make sure of it all. TYIA
Normally, I would say yes. I am not familiar with PMI and MIP (for FHA) that alot of people pay for, and if you did, if that would pick up the balance. You might google deficiency balance...that's what its called.
Under Art. 9 of the U.C.C. and per the terms of your Agreement, I would say with confidence an unequivocal yes.
Rules vary state by state. Deficiency judgments on purchase money mortgage for residences are not allowed in California. In Florida, the fast way to foreclose is in rem (against the property only) and the deficiency must be collected, if at all, by filing a separate action unless the case is done the slow way in the first place. However, the granting of a deficiency judgment is "within the sound discretion of the court" which basically means that a creditor doesn't have an absolute right to a deficiency judgment, and if the court refuses to grant one the creditor would have to prove on appeal that there was an "abuse of discretion"--and that's a very difficult standard to meet (and a good reason for Floridians not to do a "trash out" that would leave behind damning pictures of filth and disarray--remember that "sound discretion" part). In other words, although a Florida creditor can certainly get a deficiency judgment, the deck is sort of stacked against them. In other states, the laws would be different, but I would expect a certain amount of leniency toward people who are already losing their home, and a certain amount of rigor expected of lenders who should have known what the property was worth at the outset and should have had enough equity cushion to make themselves whole in a foreclosure. I wouldn't agree to pay any deficiency amount unless and until I understood whether I could be sued successfully, and how likely that kind of success would be for the creditor.
In a lot of states, article 9 of the UCC has no bearing on home mortgages ... completely different statutory scheme not UCC-based.
