Foreclosure is a process of forcing a mortgaged property to be sold.
In a state that uses a "judicial process," the foreclosure begins by a bank or lender filing a lawsuit to collect on the outstanding debt owed by the borrower. However, there are also states that allow the lender or bank to initiate a foreclosure without court intervention. These states are referred to as "non-judicial" states. Sometimes, both processes are available.
The proceeds from the sale will go to pay off the principal amount and accrued interest. The property owner will still be liable for any deficiency, which the lender can take to court to obtain a deficiency judgment.
Foreclosure obviously affects the ownership interest in a piece of property. However, it can also have a serious impact on your other assets, particularly where there is a deficiency judgment. Other assets affected include:
- Other real property
- Personal property
- Bank Accounts
1) Judgment Lien – a lien is a court order that gives a lender a specific claim against property. After a foreclosure, many lenders take their deficiency judgment and have a court place a lien on personal and real property. A lien gives the lender an ownership interest in that property. This not only includes homes or undeveloped land, but also things like:
- Business Assets
- Certain trusts
- Valuable jewelry, art, and nearly anything else of value
2) Wage Garnishment – a bank or lender with a deficiency judgment against the former property owner may also petition to garnish their wages. However, wage garnishment is limited. Generally, under federal law a creditor may not take more than 25% of the debtors disposable earnings, or the total amount of their weekly wage that exceeds thirty times the federal hourly minimum wage rate, whichever is lower.
3) Bank Levies – Creditors that are aware of bank accounts may ask the courts to levy the assets in those accounts to fulfill their judgment, essentially giving them access to funds in the account.
Furthermore, every state has a list of exemptions from debt collection, and those suffering from severe financial hardship may qualify as "judgment proof."
If you are facing foreclosure or have already gone through the process, an real estate attorney may help you protect your other assets. Contacting a lawyer in your area is the best way to ensure lenders and creditors do not take advantage of you.