After Default on Mortgage Lender Can Collect Debtor’s Assets, Garnish Wages

Four years ago a lot was purchased in the Arrowhead area of Peoria for $300,000. They paid a $20,000 cash down payment with a mortgage of $280,000. They had kept the payments current on this lot until five months ago. A real estate broker, and says that the lot is worth $80,000 now. Because of the default on the mortgage, the mortgage lender has now scheduled a foreclosure sale in three months. The couple works for a large insurance company, and are scared that after the foreclosure sale the mortgage lender will still try to collect on the mortgage loan by garnishing our wages. How much will they owe the mortgage lender after the foreclosure sale? Is there a time period for the mortgage lender to collect against them?

After the foreclosure sale the mortgage lender will probably have a deficiency claim against them for $200,000 ($280,000 loan minus $80,000 value of the lot). The mortgage lender then has ninety calendar days to file a collection lawsuit against them for $200,000. Unless they can prove that the lot is worth more than $80,000, i.e., “battle of appraisers,” the mortgage lender will get a judgment against them for $200,000, plus court costs and attorney’s fees. After getting this judgment, the mortgage lender can collect against their assets, including garnishing your wages. Any garnishment of wages, however, is generally limited to 25% of your net paycheck. Note: The anti-deficiency statutes protect homeowners from any personal liability after the foreclosure sale on loans used to purchase a home, but do not protect owners of vacant lots.

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