Post Foreclosure, House is Gone but Deficiency Judgement (Debt) Lives On, WSJ

"Now there are foreclosures that leave banks holding the bag on more than $100,000 in debt," says Michael Cramer, president and chief executive of Dyck O'Neal Inc., an Arlington, Texas, firm that invests in debt. "Before, it didn't make sense [for banks] to expend the resources to go after borrowers; now it doesn't make sense not to."

LEHIGH ACRES, Fla.—Joseph Reilly lost his vacation home here last year when he was out of work and stopped paying his mortgage. The bank took the house and sold it. Mr. Reilly thought that was the end of it. In June, he learned otherwise. A phone call informed him of a court judgment against him for $192,576.71. It turned out that at a foreclosure sale, his former house fetched less than a quarter of what Mr. Reilly owed on it. His bank sued him for the rest. The result was a foreclosure hangover that homeowners rarely anticipate but increasingly face: a "deficiency judgment." Forty-one states and the District of Columbia permit lenders to sue borrowers for mortgage debt still left after a foreclosure sale. The economics of today's battered housing market mean that lenders are doing so more and more.
By Jessican Silver-Greenberg, Oct. 1, 2011 WSJ

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(Illustration courtesy of Kentucky Foreclosures, Inc)