WA Foreclosures – What is a Deficiency Balance?
October 24th, 2007 by Mark FlandersLife can be overwhelming at times. It happens to us all. There’s information overload, the mounting costs of everything from gasoline to college educations, the internet explosion, health care cost increases, international strife, the whole political tennis match, FHA reform, rising foreclosure estimates in America and the day-to-day business of living while raising families. Have you tried to help your children with their homework lately? It’s no wonder many Americans consider “letting the house go back to the bank” as a viable solution to the ever-present stress of living life.
As a solution to debt problems, Foreclosure may not provide the financial relief some homeowners are seeking. Rather than ending up with a more managable budget after foreclosure, many consumers are horrified to find they must still make payments to a lender on a home they no longer own. The problem didn’t get better, it got worse.
Homeowners with significant equity in their homes tend to fight vigorously to save them. Homeowners who believe they have little to lose in equity, are more apt to “throw in the towel” when financial times get tough. These homeowners often get hurt the worst. And its not uncommon.
A deficiency balance occurs when the proceeds of the sale are insufficient to cover all the costs associated with the property being sold. First, there is the mortgage (sometimes there are more than one). Then there are late fees, attorney fees, court cost and any penalties that were assessed during the Foreclosure process. Sometimes there are back taxes that must be paid and unpaid utility bills. Once all these amounts are added up, they often exceed the amount of money generated by the sale of the property by tens of thousands of dollars. Now the homeowner is a renter with a huge liability owed on a home they no longer own as well as the cost of rental housing.
One of the hardest things for any of us to do is to keep a clear head while under financial pressure. It is the one time we can ill afford to make a poor decision. A decision to allow a home to be foreclosed that results in this scenario, does nothing to alleviate the stress a homeowner with financial trouble is under. It just prolongs the misery. Think twice before “throwing in the towel”. Is there ANY other way to work your way out of this tight spot?
To make matters even worse, if the Lender decides to “Forgive” the deficiency balance, don’t be surprised if the IRS labels this as Income and demands taxes on the money. They have done it many times in the past.
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Tags: Foreclosure, kitsap real estate, washington state foreclosure
This is something that I’m finding conflicting information about. A lot of people and sites say that in WA state they can NOT come after you for the deficiency unless its a deficiency on a home equity loan. Perhaps some more research is needed or links to WA state laws because this is confusing!
I am waiting on your response.
Can you rightoff the amount of the deficiency balance on your taxes?
This is a big issue in NE Ohio since we are one of the foreclosure leaders. We have a few wonderful non profit groups working to helpl as well. I have had three people in last six months with positive results from their lenders regarding short sales. So maybe it depends?
Hi Guys! Our recent experience has been that banks/lenders are less likely to 1099 short sale sellers and would rather go after them for the entire owed balance. Yes, sometimes the banks “work” with the Sellers for an agreed upon balance repayment, and sometimes we still see a 1099 agreement, but more and more we are just seeing the bank follow though with the foreclosure than “settle” for anything less.