Q: My home was recently foreclosed upon. The bank claimed I owed $375,000 on the day of the foreclosure, but the bank was the only bidder at $325,000. They then sold my house for $400,000, but are going after me for a deficiency of $50,000, plus legal and court costs. Is this legal? Is it fair?
A: Is it legal? In those states that allow lenders to seek a deficiency judgment, the answer is yes. Is it fair? In my opinion, deficiency judgments are unfair, but unfortunately there still are states with laws that allow them — even if the lender sells the property for more than they claim you owe.
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What’s a deficiency judgment? It is the difference between what the borrower owed the bank on the date of the foreclosure sale and the amount the property was sold for.
A recent Illinois case — Old Second National Bank vs. Jafry — confirmed that when a lender forecloses in a state where deficiency judgments are allowed, this terminates the relationship between the lender and the borrower. If the lender subsequently sells the property for a profit, that’s money in the lender’s pocket.
The court made a point of challenging the borrower. If the home was worth more than you owed, why did you let it go to foreclosure? Why didn’t you try to sell it? That’s an important fact to keep in mind. If you can sell, even with a loss via a short sale, don’t let your house go to foreclosure.
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Q: What is eminent domain? I am concerned that the government is considering taking my business property and I need to defend myself.
A: I will provide you with a very brief outline, but I strongly suggest you immediately talk with a local attorney who has experience in this complex area of law.
Oversimplified, the government — and that includes public utilities, railroads and in rare cases a private developer — has the right to take your property so long as you receive fair compensation. This is also called condemnation.
State and federal laws differ. Once again, this is an oversimplification, but if the government decides it needs your property, it will generally make you an offer. If the dollar figure proposed is not acceptable, you can reject the offer. Then there is something known as a quick take: The government asks the appropriate court to take possession of your property. You will be made a defendant in this action.
You do have some legal defenses. For example: the government may not have a public purpose, or your property may not really be necessary for government use. Another defense is that the government does not have the legal or statutory authority to take your property.
Finally, you can tell the court that you believe your property is worth more than the government has offered. Typically, though not always, the court decides the legal issues and a jury decides the value.
You will need an independent appraisal to present to the court. It also helps if you can get one or two real estate brokers to testify regarding what the property is worth.
Your lawyer will guide you through the process. But you also should start planning ahead. In most cases, the government will win and take your property. While you may receive more money than initially offered, where will you go? Look for alternative sites. What will they cost? Will you lose clients if you have to move to another neighborhood? Answers to these questions should be submitted to the court, so that any hardship you will incur may be considered in determining your compensation.
Benny Kass is a practicing attorney in Washington, D.C., and in Maryland. He does not provide specific legal or financial advice to any reader. Readers may email him, but he cannot guarantee a personal response.
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