Deficiency judgments are back(were they gone?)

Classic:

Julia Ingham invested in four Lehigh Acres properties in June 2005, hoping to "drum up some real money for retirement."

All have since been foreclosed on by lenders, says the 62-year-old retired programmer for International Business Machines Corp.

A credit union, after selling one of the foreclosed houses for less than the debt on it, obtained a deficiency judgment against Ms. Ingham for $181,059.54. She worries she could face such judgments on the other properties, too.

Ms. Ingham says when she bought them, she misunderstood how much her investments put her on the hook for. Her builder, she says, promised she could invest $10,000 in four properties and then flip them for a profit. Ms. Ingham says deficiency judgments punish borrowers who were taken advantage of by lenders and builders.

Catherine Ortega, who owns a Lehigh Acres home around the corner from one of Ms. Ingham's foreclosed homes, says banks should leave people like her former neighbor alone. "Those people have suffered enough," she says.

Yeah! Poor Ms. Ingham not only failed to "drum up somw real money for retirement" through greedy speculation that went against all fundamentals, but she's also out a full $10K. What suffering, how inhumane!

Article states that the big money center banks have tended to avoid going this route for fear of negative publicity, but I suspect losses and the need for cash will force a major rethink. I've heard way too many stories about people speculating in 2nd homes/investor properties and betting that the banks won't go after their other assets. I'm no fan of the banks, but this ain't right either.

Can't Ms.Ingham file for bankruptcy and wipe out these deficiency judgements..but she should wait until all her properties are foreclosed upon imo.

not an expert but i thought new york was one action state. has it changed or am i misunderstanding?

List Of One Action States
"In the following states, mortgage lenders are only allowed one legal action to collect back their debts from each homeowner. Depending on the exact state’s laws, the options are different. For example in New York, the lender can choose either to foreclose the house or to sue the homeowner. If you are living in any of these states, you will have to consider your approaches more carefully and possibly by consulting a local foreclosure attorney on your homeownership:

California
Montana
Nevada
New York
Utah"

Personal bankruptcy mostly only works if you really can't pay. I suspect personal bankruptcy "protection" isn't as magical as some make it out to be.

Orpheus12, correct. NYS is one-action. See http://www.herrick.com/siteFiles/Publications/3F7248341D7C4A05D05873AD4A9A4453.pdf

Really interesting article - thanks for posting. I was particularly amazed by the following sentence:

"deficiency judgments will eventually be bundled into packages that resemble mortgage-backed securities."

Wow. Granted, they're talking about private HNW investors here, but still.

I thought NY was a one-action state as well. The article sidebar lists NY as one of the 41 deficiency judgement states, though. Strange.

"deficiency judgments will eventually be bundled into packages that resemble mortgage-backed securities."

I could really see that happening, but who controls the servicing/litigation? Devil is in the details , and that's an important one.

---Re deficiency judgment---

According to §1301 of the RPAPL, a
lender seeking to recover a single mortgage
debt secured by one or more properties for
which a person or entity is, at least in part,
personally liable is generally not allowed to
use all of its remedies simultaneously. A
lender usually must choose first to proceed
with either (i) a foreclosure action under the
mortgage against one property, followed by a
deficiency proceeding if the lender wants to
pursue any remaining debt (whether against
other property or the obligor), or (ii) an
action to recover on the note (or personal
guaranty). Only after the first case is
completed may the lender proceed with the
next. This rule is commonly known as New
York’s “one action” rule.

Section 1371 of the RPAPL is an
“anti-deficiency rule,” which has been read
to require generally that a lender holding one
or more properties as security for one debt
must move, within a limited 90-day period,
for a deficiency judgment after each individual property is sold and only then
proceed to sell the next property. See Sanders
v. Palmer, 507 NYS2d 844 (1986).2
The rationale of this rule is to permit the
borrower to learn, within a specified period
of time, the amount of the total unsatisfied
debt after each individual sale, thus allowing
the borrower to decide whether the creditor
will pursue any deficiency, and, in a multiple
property context, whether it wants to retain
its remaining properties by paying the
remaining debt. The deficiency is measured
by the excess of the indebtedness over the
greater of the sales price of (a) the property at
the foreclosure sale and (b) the fair market
value of the sold property as of the bid date
for such sale.

Fair Market Value: In order to calculate
the amount of a deficiency judgment,
pursuant to RPAPL 1371(2), a court must
determine “ ‘the fair and reasonable market
value of the mortgaged premises as of the
date such premises were bid in at auction.’ ”
Trustco Bank National Association v. Gardner,
711 NYS2d 597, 599 (App. Div. 2000). The
court makes its determination based on the
evidence presented.

http://www.gibsondunn.com/fstore/documents/Media/NYLJ_ALevy.pdf

thanks for the clarification.looks like my understanding was incorrect.

"Personal bankruptcy mostly only works if you really can't pay. I suspect personal bankruptcy "protection" isn't as magical as some make it out to be."

It's not.

A friend of mine -- a bankruptcy attorney -- explained to me that thanks to the recent changes in bankruptcy law, in New York state, a judge -- not you -- determines whether you can file for Chapter 7 (total liquidation of all your assets and a wiping clean of the slate) or Chapter 13 (you keep most of your assets and work out a payment plan for all of your debt). The major deciding factor is whether you are a) employed and b) earning more than the state's median household income (currently $45,000 -- and no, it doesn't matter whether you reside in Manhattan or Utica).

If you're employed (whether by a third party or yourself) and earning more than $45,000, barring any extenuating circumstances (caring for a handicapped family member, undergoing cancer treatment, etc.), most likely you will be placed under Chapter 13. Which of course means after the foreclosure sale, you're still on the hook for whatever you still owe on the mortgage.