What happens if you walk away from your house when facing foreclosure? Are you responsible for that debt?

“What happens if you walk away from your house when facing foreclosure? Are you responsible for that debt?”

Stop your Alabama foreclosure

Stop your Alabama foreclosure

What happens when you walk away from a mortgage debt — sometimes called a “strategic foreclosure”?

Let’s make sure we are on the same page as to what this means.

You decide to let your house go back to the mortgage company in a foreclosure.

At the public sale, the house will be sold (usually to the mortgage company) and we need to compare the amount sold for with the amount owed.  If the house sells for less than what is owed, then there is a deficiency.  Here’s an example.

You owe $200,000 but your house is fallen down in value to $120,000. That’s what it gets sold for. What about that $80,000? It sold at foreclosure sale for $120,000. What about that $80,000 gap?

In some states you are not allowed to be sued for the deficiency.


In Alabama, we don’t have that rule. The mortgage company can come after you for that deficiency.

I’ve had clients that have been sued for hundreds of thousands of dollars.

So to answer the question “Am I responsible for that debt” we need to look at “What did we owe? What was the amount at the foreclosure?”

Note:  we are not talking about what happened afterwards. Sometimes people say “Well, my house was 200. They sold it at the foreclosure for 200, but then that person sold the house for 350. I want the difference.” No, you don’t get the difference.

But if you owe 200, it gets sold for 300, then yes you are going to get some of that difference. But if it sold for less than you owe, then you may owe the difference.

It just depends on what happened at that foreclosure sale.

Sometimes there’s been a foreclosure and there’s a bankruptcy before it. You did not reaffirm the debt, you discharged the debt. Well, you don’t owe it. I don’t care what it was sold for. You don’t owe it.

But if there was no discharge of the debt, then yes you will owe the difference.

Here’s a good way to check it out.

Usually, you’ll have a letter from the mortgage company called an acceleration letter. It says “You owe the whole amount, right now. That is $200,000.” Then the foreclosure happens four weeks later.

So this gives you a pretty good picture of what is owed.

Then you pull the foreclosure deed by going to the probate court.

You can call the mortgage lawyer and maybe they’ll send it to you. But in any event, you look at that foreclosure deed. Let’s say the foreclosure date is August 28, 2015.

The foreclosure deed would say “Today on August 28th, 2015, the property was sold to the high bidder for $135,000.” If I got a letter saying I owed $200,000 and then I get the foreclosure deed saying it was sold for $135,000 I’m going to owe that difference, potentially.

It becomes very important when dealing with a deficiency issue to see if the mortgage company violated the law as this may allow an “offset” or reduction in what is owed or the numbers the mortgage company claims you owe may be altogether wrong.

And if the foreclosure itself was wrong, then you may not owe anything — instead the mortgage company may owe you money damages.

So check out the facts of your situation and if you live in Alabama we’ll be happy to chat with you — give us a call at 205-879-2447 or you can reach us through our website here.

John Watts

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