In a word: yes. After defaulting on your mortgage payments, a home enters into foreclosure. You have two choices: enter into foreclosure or sell the property in a short sale and hope that it covers the debt that is owed. It is after the home is sold in a short sale that the issue of a deficiency judgment even occurs--after a home is sold in a short sale and the monetary amount is less than the amount owed to the lender.
This deficiency judgment, a court order, may be an issue if the lender decides to sue for payment of the remaining mortgage. It is ultimately decided by a court-sanctioned "final amount" in most cases, but as an appraisal of net loss in others.
So, in going after the original homeowner, co-signer, parties involved in the purchasing end, all of these individuals are responsible for paying back the debt incurred in owning the home. Then, if the amount owed cannot be repaid, the lender can take these people to court. Granted, there is the option of avoiding foreclosure by exchanging the deed of the property to the lender, called deed in lieu of foreclosure, but even then, the lender can still sue over the deficiency judgment.
Yet, not all lenders decide to taken these former homeowners to court. First of all, it depends on the type of foreclosure--judicial or non-judicial. It also depends on the state, since certain states have different rules and regulations regarding foreclosure. Another factor depends on the actual terms of the mortgage. Finally, the lender has to take into account the different costs that are factored in, including court costs, interest payments, penalties for pre-payments, and back principal payments. However, it all comes down to whether or not the lender feels that he/she can collect the deficiency judgment and the ultimate cost that will be incurred to collect this judgment.
During the process, the homeowner must reveal his/her net worth, which will help the lender decide whether or not to pursue this case.
Bottom Line:
So you've probably found this entry because you are either facing foreclosure or have already foreclosed and are wondering if you are going to be on the hook for any more money. The only way to know is by reading through your foreclosure or short sale papers. Most of the big banks will have some sort of deficiency clause in there, but that doesn't always mean that they will actually go after you. It costs them money to cary out a deficiency judgment and if you don't have any they will just move on. That being said, if you have just walked away from your house because you were underwater, well, if you were the bank wouldn't you go after you?
If you are considering foreclosure, you may want to enlist the aid of an attorney and get them to rework your contract to avoid a deficiency judgment. Government-paid foreclosure experts that help with loan modifications, relocation assistance, etc. can also help in getting a deficiency judgment removed. You have little leverage when foreclosing, but certainly more than after you have signed all the papers.
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