Understanding Foreclosure Deficiency

When a person loses their home in foreclosure, they are often surprised to find that they still owe money to the mortgage company even after the bank has taken the house. This is called the foreclosure deficiency. After foreclosure, most people will still owe a deficiency, because the home does not sell for a high enough value at auction in order to pay off the entire loan balance.

Consider this example: A homeowner owes $200,000 on their mortgage. Their home is only worth $150,000. In a foreclosure in Ohio, the Sheriff will sell the home at a Sheriff's sale for about 2/3 its value. In this case, the Sheriff would sell the house for about $99,000 (2/3 of $150,000). That money would be paid to the mortgage company, minus certain costs related to the foreclosure. That would leave a deficiency balance of $101,000 that is still owed to the mortgage company.

The mortgage company can try to collect this money. They could garnish wages, garnish bank accounts, or file liens against other property. However, in Ohio, the mortgage company is generally limited to a maximum of two years to try to collect the debt. After two years, they generally cannot collect. This depends on the type of loan and does not apply to commercial loans. Only an attorney can advise you whether a mortgage company might be able to collect longer than two years following a foreclosure.

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