There’s a debate going on right now in Sacramento concerning what will happen to the difference between what a borrower owes and what their home sells for in the event of a foreclosure.
The difference, known as a deficiency, is the biggest concern of people thinking about or facing foreclosure. Certain states, like Florida, allow lenders to sue the foreclose for the difference after the home has sold in a foreclosure. This is known as a deficiency judgment. Other states, such as California, allow borrowers to walk away, and as long as they haven’t refinanced and/or pulled cash out of their home’s equity, get out of the home with no further financial obligation.
Lawmakers in California are debating the fairness of making certain borrowers liable for the deficiency while some are not. Not surprisingly, lenders are lobbying for laws to do away with the deficiency judgment altogether, wanting to be able to collect anytime a borrower walks away.
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