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In today’s market of souring home loans in the midst of a persistent recession and record levels of unemployment, banks have foreclosed on many more homes than in any time in recent history.  Some areas of the country have been decimated by wave after wave of foreclosures, leaving whole neighborhoods vacant and abandoned.  The people caught by these economic hard times may believe that after their home has been foreclosed on their ordeal will be over, but many are finding that foreclosure is not the end of their problems.

The Big Issue

At the heart of the matter is that many of the homes across the nation today have dropped in value by a significant amount, leaving many of the people that brought their homes at the height of the housing boom owing more on their home than the home was worth.  In addition, a large number of these people purchased their homes with exotic mortgage loans that were due to reset to much higher payments after several years in the home, thinking that they would be able to refinance the home to a fixed rate or lower rate loan before the payment amount increased.  Unfortunately, they were banking on the value of their home continuing to rise and most were unable to refinance with negative equity in the home.

The Resulting Problem

As lenders have foreclosed on homes across the nation, many of these homes have been resold to other buyers for less than the amount still owed on the mortgage loan that the original owner obtained for the home – also known as a short sale.  In the event of a short sale, the lender has the option to recoup the difference between the amount that the person owed and the amount that the home was sold for from the original borrower.  Imagine the surprise when these borrowers realize that they are still liable for thousands of dollars of payments for a home that they are no longer in possession of.

In many locations across the nation, the lender has the right to recoup the amount between what has been owed and what the home sells for along with numerous penalty fees that are tacked onto the loan amount for missing payments and going through the foreclosure process.  In an example detailed by a local newspaper, one man found that after he lost his home to foreclosure, he still owed his mortgage lender $148,064 because of the difference between what he owed and what the lender sold his home for in a short sale.  Many who find themselves in this situation have no other option than to file for bankruptcy protection.

In the past, lenders rarely went after the individuals whose homes were foreclosed on for the difference between the sale price and what was owed on the home loan because these people rarely had any assets that could help them pay the amount and pursuing these borrowers in court cost a large amount of time and money.  The difference today is that a number of people are simply walking away from homes with values that are underwater to avoid paying significantly more than the home is worth, regardless of whether they could afford to continue making the payments on the home.  With the number of foreclosures across the nation continuing to rise, lenders are determined to get what they are owed, especially if they suspect that the person could continue making their payments but are making a conscious choice to stop paying on their mortgage loan.