Question: Four years ago we purchased a lot in the Arrowhead area of Peoria for $300,000. We paid a $20,000 cash down payment with a mortgage of $280,000. Although it has been difficult, we have kept the payments current on this lot until five months ago. Our neighbor is a real estate broker, and says that the lot is worth $80,000. Because of the mortgage default, the mortgage lender has now scheduled a foreclosure sale in three months. My husband and I both work for a large insurance company, and we are terrified that after the foreclosure sale the mortgage lender will still try to collect on the mortgage loan by garnishing our wages. How much will we owe the mortgage lender after the foreclosure sale? Is there a time period for the mortgage lender to collect against us?
Answer: After the foreclosure sale the mortgage lender will probably have a deficiency claim against you 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 you for $200,000. Unless you can prove that the lot is worth more than $80,000, i.e., “battle of appraisers,” the mortgage lender will get a judgment against you for $200,000, plus court costs and attorney’s fees. After getting this judgment, the mortgage lender can collect against your 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.
