foreclosure deficiency judgments

[Vinny Saprano]

Jurisdiction

Michigan

My Michigan home was F/C on 07-28-10. B of A purchased the property at the Sheriff sale. I waived my redemption rights and vacated property in Sept 2010. I withdrew money from my 401k, gifted it to my girl friend (now my wife) and she purchased a home in AZ where we now reside. The house is in her name only as I did not know if the creditor would perform routine searches to determine if I owned other real estate that could be liened in a deficiency judgment. B of A finally sold the property on 10/27/11 for $68,500 leaving roughly a $180,000 deficiency. I am not aware of any deficiency judgment against me at this time.

My wife is currently experiencing potential financial issues where bankruptcy could be a consideration. My concern at this time is whether her creditor could potentially lien the AZ property in a judgment against her. Under AZ bankruptcy law, there is only a $150,000 exemption for a personal residence and given the existing equity that would create an expensive problem.

THE CURRENT QUESTION: Should I still be concerned about a deficiency judgment against myself stemming from the B of A mortgage debt? I now desire to put the AZ house in my name. I understand Michigan Statute 600.5813 states a judgment action must commence within a period of 6 years from the date of the claim/default. That suggests to me that the 6 year period expired "around" June 1, 2009, the date on which I defaulted on making payments to B of A (my last mortgage payment was made on May 1, 2009). COULD SOMEBODY CONFIRM IF THIS PLACES ME ON SOLID GROUND AGAINST A FUTURE DEFICIENCY SUIT?

As a side not, it's been suggested that the gifting of my 401k funds to my girl friend to purchase the AZ property "might" be construed as a fraudulent conveyance for the purpose of attempting to insulate myself from collection by B of A, et al, if a judgment had been obtained against me. But since the 6 year period has lapsed and I have no evidence of a judgment, I suppose it is a moot point. Further, I might actually be correcting/reversing the effect of the monetary conveyance to my then girl friend.)

I realize I'm sounding sleazy and conniving. Frankly, I don't give a hoot. I'm as entitled as anyone to play the system after losing a 6 figure job in a miserable economy, and $300,000 in home equity per the appraisal I received just 2 short years before my decision to default on the mortgage. Thank you Barney Frank and Christopher Dodd and lets not forget Bill for his CRA initiative.

 

[adjusterjack]

I'm going to jump around a bit so let's start with this:

I understand Michigan Statute 600.5813 states a judgment action must commence within a period of 6 years from the date of the claim/default. That suggests to me that the 6 year period expired "around" June 1, 2009, the date on which I defaulted on making payments to B of A (my last mortgage payment was made on May 1, 2009).

That's true. However, you left the state of Michigan at some point within the 6 year limitation period so it's possible that 600.5853 might apply (SOL stops running while you are out of state).

2014 Michigan Compiled Laws :: Chapter 600 - REVISED JUDICATURE ACT OF 1961 :: Act 236 of 1961 REVISED JUDICATURE ACT OF 1961 (600.101 - 600.9948)***** 600.8121.amended :: THIS AMENDED SECTION IS EFFECTIVE JANUARY 2, 2015 ***** ***** 600.8121 :: THIS SECTION IS AMENDED EFFECTIVE JANUARY 2, 2015: :: See 600.8121.amended ***** :: 236-1961-58 CHAPTER 58 LIMITATION OF ACTIONS (600.5801...600.5869) :: Section 600.5853 Absence from state.

My wife is currently experiencing potential financial issues where bankruptcy could be a consideration. My concern at this time is whether her creditor could potentially lien the AZ property in a judgment against her. Under AZ bankruptcy law, there is only a $150,000 exemption for a personal residence and given the existing equity that would create an expensive problem.

Correct. The AZ homestead exemption is $150,000. However, if there is so much equity in the house that a bankruptcy would create an expensive problem, she might not qualify for Chapter 7 and a Chapter 13 would require her to pay down all or part of her debts within 3 to 5 years.

Worse, with all that equity above the exemption, the bankruptcy court might order the house sold to pay down her debts before she can reap the benefits of bankruptcy.

I withdrew money from my 401k

That might have been a bad idea since your 401(k) would have been completely exempt from judgment.

Should I still be concerned about a deficiency judgment against myself stemming from the B of A mortgage debt?

This isn't a "legal" opinion but my gut says if they haven't come after you by now, they aren't likely to.

I am not aware of any deficiency judgment against me at this time.

Should be easy enough to run your own name through the court website in the county where your property was located to see if there is anything there.

As a side not, it's been suggested that the gifting of my 401k funds to my girl friend to purchase the AZ property "might" be construed as a fraudulent conveyance for the purpose of attempting to insulate myself from collection by B of A, et al, if a judgment had been obtained against me.

Well, the 401(k) was exempt from judgment so cashing it out and giving the money away probably would have been defensible.

I realize I'm sounding sleazy and conniving. Frankly, I don't give a hoot. I'm as entitled as anyone to play the system after losing a 6 figure job in a miserable economy, and $300,000 in home equity per the appraisal I received just 2 short years before my decision to default on the mortgage.

Funny, I used to think that everybody should pay their bills and those who defaulted were bad people. Then came the crash 10 years ago. I lost 100,000 in the stock market, my house devalued by half and the government bailed out the banks, the insurance companies, some auto manufacturers, and the stock brokers and I didn't get a nickel of any of that money.

So, no, I don't begrudge you the desire to stiff creditors and get some of yours back. More power to you.

In conclusion, I'll make two points:

1 - While a deficiency lawsuit is remotely possible, I don't really see it happening at this late date. No guarantees, of course.

2 - I suggest that you and your wife do what you can to avoid bankruptcy because that's what is likely to put your house at risk. If she signs it back over to you and then files bankruptcy that would certainly be a fraudulent transfer and the bankruptcy court could undo it or just dismiss her bankruptcy or, worse, prosecute her.

 

[army judge]

My Michigan home was F/C on 07-28-10. B of A purchased the property at the Sheriff sale. I waived my redemption rights and vacated property in Sept 2010. I withdrew money from my 401k, gifted it to my girl friend (now my wife) and she purchased a home in AZ where we now reside. The house is in her name only as I did not know if the creditor would perform routine searches to determine if I owned other real estate that could be liened in a deficiency judgment. B of A finally sold the property on 10/27/11 for $68,500 leaving roughly a $180,000 deficiency. I am not aware of any deficiency judgment against me at this time.

My wife is currently experiencing potential financial issues where bankruptcy could be a consideration. My concern at this time is whether her creditor could potentially lien the AZ property in a judgment against her. Under AZ bankruptcy law, there is only a $150,000 exemption for a personal residence and given the existing equity that would create an expensive problem.

THE CURRENT QUESTION: Should I still be concerned about a deficiency judgment against myself stemming from the B of A mortgage debt? I now desire to put the AZ house in my name. I understand Michigan Statute 600.5813 states a judgment action must commence within a period of 6 years from the date of the claim/default. That suggests to me that the 6 year period expired "around" June 1, 2009, the date on which I defaulted on making payments to B of A (my last mortgage payment was made on May 1, 2009). COULD SOMEBODY CONFIRM IF THIS PLACES ME ON SOLID GROUND AGAINST A FUTURE DEFICIENCY SUIT?

As a side not, it's been suggested that the gifting of my 401k funds to my girl friend to purchase the AZ property "might" be construed as a fraudulent conveyance for the purpose of attempting to insulate myself from collection by B of A, et al, if a judgment had been obtained against me. But since the 6 year period has lapsed and I have no evidence of a judgment, I suppose it is a moot point. Further, I might actually be correcting/reversing the effect of the monetary conveyance to my then girl friend.)

I realize I'm sounding sleazy and conniving. Frankly, I don't give a hoot. I'm as entitled as anyone to play the system after losing a 6 figure job in a miserable economy, and $300,000 in home equity per the appraisal I received just 2 short years before my decision to default on the mortgage. Thank you Barney Frank and Christopher Dodd and lets not forget Bill for his CRA initiative.

Filing bankruptcy isn't illegal, and its very difficult to accomplish these days. Don't worry about what others think, and don't justify your choices. It's your life to live, mate.

Okay, I suggest you and your beloved talk to at least FIVE local BK lawyers. Before your consultation prepare a list of a dozen questions.
After the meetings, think about the answers you received.

Choose the lawyer you best feel equipped to assist you.
Your fears are real.
The issue of gifting your 401-K to another non-relative could become a problem. The IRS is very greedy. If I recall correctly, "gifts" couldn't exceed $14,000, maybe $15,000 annually. Those gifts must be revealed. Now, I'm no tax attorney, or BK lawyer, that's why you need to see one or both, maybe even a CPA. I'm just an old Texas country lawyer. So, be very careful when large amounts of money get thrown around before the IRS types.

I hope it all works out for you. But, don't take any chances. Those greedy leeches are always looking for buried treasure, because they want it all.

 

[adjusterjack]

If I recall correctly, "gifts" couldn't exceed $14,000, maybe $15,000 annually. Those gifts must be revealed.

Those limits are limits below which a gift tax return would not have been required. Back in 2010 the limit may have been $12,000 or $13,000.

Even though a Form 709 would have been required for a higher gift it would not likely have generated any tax because the lifetime gift tax exclusion was, and is, somewhere in the area of $5,000,000 before any tax is generated.

Filing an amended tax return to add Form 709 would likely be without consequence since there wouldn't have been any tax. Ignoring the issue is also likely to be without consequence unless the OP plans on giving away more than $5,000,000 in his lifetime.

Those greedy leeches are always looking for buried treasure, because they want it all.

They already found it. I'm guessing that, between the IRS and MI income tax, the OP paid as much as 35% of his 401(k) distribution in tax for the year he closed it out.

 

[Vinny Saprano]

I'm going to jump around a bit so let's start with this:



That's true. However, you left the state of Michigan at some point within the 6 year limitation period so it's possible that 600.5853 might apply (SOL stops running while you are out of state).

2014 Michigan Compiled Laws :: Chapter 600 - REVISED JUDICATURE ACT OF 1961 :: Act 236 of 1961 REVISED JUDICATURE ACT OF 1961 (600.101 - 600.9948)***** 600.8121.amended :: THIS AMENDED SECTION IS EFFECTIVE JANUARY 2, 2015 ***** ***** 600.8121 :: THIS SECTION IS AMENDED EFFECTIVE JANUARY 2, 2015: :: See 600.8121.amended ***** :: 236-1961-58 CHAPTER 58 LIMITATION OF ACTIONS (600.5801...600.5869) :: Section 600.5853 Absence from state.



Correct. The AZ homestead exemption is $150,000. However, if there is so much equity in the house that a bankruptcy would create an expensive problem, she might not qualify for Chapter 7 and a Chapter 13 would require her to pay down all or part of her debts within 3 to 5 years.

Worse, with all that equity above the exemption, the bankruptcy court might order the house sold to pay down her debts before she can reap the benefits of bankruptcy.



That might have been a bad idea since your 401(k) would have been completely exempt from judgment.



This isn't a "legal" opinion but my gut says if they haven't come after you by now, they aren't likely to.



Should be easy enough to run your own name through the court website in the county where your property was located to see if there is anything there.



Well, the 401(k) was exempt from judgment so cashing it out and giving the money away probably would have been defensible.



Funny, I used to think that everybody should pay their bills and those who defaulted were bad people. Then came the crash 10 years ago. I lost 100,000 in the stock market, my house devalued by half and the government bailed out the banks, the insurance companies, some auto manufacturers, and the stock brokers and I didn't get a nickel of any of that money.

So, no, I don't begrudge you the desire to stiff creditors and get some of yours back. More power to you.

In conclusion, I'll make two points:

1 - While a deficiency lawsuit is remotely possible, I don't really see it happening at this late date. No guarantees, of course.

2 - I suggest that you and your wife do what you can to avoid bankruptcy because that's what is likely to put your house at risk. If she signs it back over to you and then files bankruptcy that would certainly be a fraudulent transfer and the bankruptcy court could undo it or just dismiss her bankruptcy or, worse, prosecute her.

 

[Vinny Saprano]

thank you adjusterjack. The idea of transferring the house into my name is more of a strategic play. I doubt my wife's creditor has down any public record searches at this point to determine if she owns other real estate. The condo and her 2012 Ford Edge are the only substantial assets that would be found in her name at this time. Absent the condo and any other high value items coming up in a search, this may (?) discourage the creditor from spending more in legal fees to pursue a small $20,000 judgment against one who has few assets that would be attached to satisfy the judgment.

 

[adjusterjack]

Absent the condo and any other high value items coming up in a search, this may (?) discourage the creditor from spending more in legal fees to pursue a small $20,000 judgment against one who has few assets that would be attached to satisfy the judgment.

That's the first you've mentioned the judgment against her.

The judgment will allow the creditor to garnish wages and attach bank accounts. It's unlikely that the creditor will go after the car unless there is a large amount of equity in it. Otherwise, executing against personal property is costly and time consuming.

You were concerned about a lien on the property. That, fortunately, cannot happen in Arizona. A property that has homestead protection is exempt from judgment liens even when there is equity above the $150,000 exemption.

Read ARS 33-964:

Format Document

However, the judgment itself is renewable for 5 year intervals.

Feel free to read Chapter 9 of the statutes and you'll get an idea of the potential risk to your wife over time:

Arizona Revised Statutes

The trouble with judgments is that the longer the judgment is alive the bigger and bigger the debt gets with interest, fees, and costs. Even if a creditor can't collect now, there is always a possibility that the debtor will become vulnerable at some later time.

Trust me, NOTHING discourages creditors other than bankruptcy and, as I mentioned earlier, if she doesn't qualify for Ch 7 she is likely to have to sell the house to pay off the judgment.

 

[Vinny Saprano]

That's the first you've mentioned the judgment against her.

The judgment will allow the creditor to garnish wages and attach bank accounts. It's unlikely that the creditor will go after the car unless there is a large amount of equity in it. Otherwise, executing against personal property is costly and time consuming.

You were concerned about a lien on the property. That, fortunately, cannot happen in Arizona. A property that has homestead protection is exempt from judgment liens even when there is equity above the $150,000 exemption.

Read ARS 33-964:

Format Document

However, the judgment itself is renewable for 5 year intervals.

Feel free to read Chapter 9 of the statutes and you'll get an idea of the potential risk to your wife over time:

Arizona Revised Statutes

The trouble with judgments is that the longer the judgment is alive the bigger and bigger the debt gets with interest, fees, and costs. Even if a creditor can't collect now, there is always a possibility that the debtor will become vulnerable at some later time.

Trust me, NOTHING discourages creditors other than bankruptcy and, as I mentioned earlier, if she doesn't qualify for Ch 7 she is likely to have to sell the house to pay off the judgment.

 

[Vinny Saprano]

I am sorry - I was not clear. My wife owns real estate in Ohio that previously served as her personal residence for 20 years in a decaying urban area. The home has lost nearly 75% its original purchase value. The property is currently in the early stages of F/C. The bank's drive-by appraisal of the property is currently at $16k . Comps support this number. The 1st mortgage debt stands at $25k.

The neighborhood is made up principally of rentals, and thus, the home has value primarily to inner city investors. It has recently been listed for sale and is occupied by a tenant who has ceased paying rent. We allow tenant to remain just to keep the property occupied. It it were to become vacant, the vandals would strip the property to $0 value in a matter of days. I don't believe the bank would want to risk taking such a property into the REO portfolio. We will ask the bank to consider a short sale to an investor. That is where a POTENTIAL judgment for the unpaid mortgage balance could become an issue.

I will hire an attorney in Ohio to assist in hopefully making the short-sale argument and negotiating it with some fair percentage of debt forgiveness.

Therefore, a deficiency judgment against my wife is purely speculative at this point in time.

Since you bring up the fact that my wife's AZ home could be forced to be sold by a bankruptcy court, I wonder if I could make the argument that the home actually belongs to me. (This is becoming a can of worms.) I withdrew funds (about $120k) from my 401k to purchase the AZ home at the height of the AZ foreclosure crisis. Since 2010, I have also payed from my personal account on a small mortgage in her name. If a deficiency judgment was obtained against her related to her pending foreclosure, and her creditor attempted to come after the AZ real estate, I wonder if there is a legal basis to argue that I effectively made a fraudulent conveyance to her back in 2010 for the sole purpose of attempting to block B of A from collecting on my deficiency. All financial records clearly point to the fact I used my money to fund ownership of the property.

Now I realize that if I were to win that argument that B of A might still potentially have the ability to obtain a deficiency judgment against me and lien the AZ property.

 

[adjusterjack]

I don't believe the bank would want to risk taking such a property into the REO portfolio.

Never try to second guess or apply logic to a bank's procedures. The foreclosure process is often automatic with a given timeline and the bank's policies often don't allow it's employees to pick and choose the loans to foreclose.

We will ask the bank to consider a short sale to an investor. I will hire an attorney in Ohio to assist in hopefully making the short-sale argument and negotiating it with some fair percentage of debt forgiveness.

Don't ask and you don't need to pay an attorney. Hire an Ohio real estate broker who specializes in short sales. They handle all the legal aspects and the negotiations with the bank and their commission from the bank covers their costs.

The bank prefers dealing with real estate brokers and their attorneys because they are pros and know what they are doing.

Once your wife has hired the broker, she's out of the picture with regard to dealing with the bank.

That is where a POTENTIAL judgment for the unpaid mortgage balance could become an issue.

Unlikely because part of a short sale deal includes the forgiving of the loan balance. Otherwise why would a borrower agree to it when the alternative is to stick the bank with a distressed property.

Since you bring up the fact that my wife's AZ home could be forced to be sold by a bankruptcy court, I wonder if I could make the argument that the home actually belongs to me.

Obviously you can "make the argument" but it will go nowhere because her name is on the deed and she's the owner.

If a deficiency judgment was obtained against her related to her pending foreclosure, and her creditor attempted to come after the AZ real estate,

Again, the creditor would not be able to come after her primary residence in AZ. I explained that earlier.

It would be the bankruptcy court that might require the sale to free up funds to pay down the debt. If she never files bankruptcy that never becomes an issue.

Frankly, for someone who owns a home free and clear (or almost free and clear) bankruptcy should never be an option.

I wonder if there is a legal basis to argue that I effectively made a fraudulent conveyance to her back in 2010 for the sole purpose of attempting to block B of A from collecting on my deficiency.

Also won't do you any good.

Her loan, her debt, her "legal" problem. Other than moral and financial support you have no dog in the race.

All financial records clearly point to the fact I used my money to fund ownership of the property.

That was either a gift or a loan if you did it before you were married.

Any money you put into her house after you were married gives you a community property interest (not ownership) in the equity that has accrued during the marriage. But that only counts if you get divorced.

This is becoming a can of worms.

One of your own making.

I'll summarize:

1 - The odds of a deficiency judgment against you for your old home is extremely slim at this late date.

2 - Your wife's home in AZ is safe as long as she doesn't file bankruptcy.

3 - Hire an Ohio real estate broker ASAP to get started on a short sale.

 

[Vinny Saprano]

Never try to second guess or apply logic to a bank's procedures. The foreclosure process is often automatic with a given timeline and the bank's policies often don't allow it's employees to pick and choose the loans to foreclose.



Don't ask and you don't need to pay an attorney. Hire an Ohio real estate broker who specializes in short sales. They handle all the legal aspects and the negotiations with the bank and their commission from the bank covers their costs.

The bank prefers dealing with real estate brokers and their attorneys because they are pros and know what they are doing.

Once your wife has hired the broker, she's out of the picture with regard to dealing with the bank.



Unlikely because part of a short sale deal includes the forgiving of the loan balance. Otherwise why would a borrower agree to it when the alternative is to stick the bank with a distressed property.



Obviously you can "make the argument" but it will go nowhere because her name is on the deed and she's the owner.



Again, the creditor would not be able to come after her primary residence in AZ. I explained that earlier.

It would be the bankruptcy court that might require the sale to free up funds to pay down the debt. If she never files bankruptcy that never becomes an issue.

Frankly, for someone who owns a home free and clear (or almost free and clear) bankruptcy should never be an option.



Also won't do you any good.

Her loan, her debt, her "legal" problem. Other than moral and financial support you have no dog in the race.



That was either a gift or a loan if you did it before you were married.

Any money you put into her house after you were married gives you a community property interest (not ownership) in the equity that has accrued during the marriage. But that only counts if you get divorced.



One of your own making.

I'll summarize:

1 - The odds of a deficiency judgment against you for your old home is extremely slim at this late date.

2 - Your wife's home in AZ is safe as long as she doesn't file bankruptcy.

3 - Hire an Ohio real estate broker ASAP to get started on a short sale.

 

[Vinny Saprano]

Thank you for your expert advice.