A bill introduced in the U.S. House of Representatives would limit the time frame for deficiency judgments against single-family homes and give protection to low-income households.
House Resolution 3566, also known as the Fairness in Foreclosures Act of 2011, would put a one-year limit on any judgment except in states that have shorter restrictions. Existing law would take precedence in those states.
Rep. Ed Towns, D-N.Y., introduced H.R. 3566 [1] on the House floor Tuesday.
"A deficiency judgment after foreclosure seems to be one of the greatest injustices that occur to homeowners after they have gone through the arduous foreclosure process," Towns said in a release. "Not only are they behind by thousands of dollars on their mortgage payments and facing public auction of their houses, the ordeal may continue indefinitely."
The bill would also prohibit deficiency judgments against a borrower in a "low-income family," and any deficiency would not be reported to credit agencies.
Deficiency judgments typically come about after a short sale or foreclosure sale when homes are sold at a price lower than the amount left on the mortgage. Rules and limitations vary by state, though often a first loan, or purchase-money mortgage, is free from deficiency actions.
California, through two separate laws in the last year, barred lenders and servicers from seeking deficiencies in residential mortgages. Nevada enacted a law in June eliminating them in specific circumstances, notably for homeowners who have not refinanced.
U.S. pre-foreclosure sales, often short sales, totaled 102,704 in the second quarter according to data firm RealtyTrac. Short sales made up 12.1% of all sales in the quarter in the most recent data available.
H.R. 3566 was referred to the House Judiciary Committee after its introduction Tuesday.
Posted By ANDREW SCOGGIN
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