Lenders going after money lost in foreclosures and short sales

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More and more lenders are pursuing borrowers for money lost in foreclosures and short sales. The money lossed in foreclosure or short sale is called a "deficiency" - the difference between what was owed on the mortgage loan(s) and the proceeds from the foreclosure or short sale. Some states, including Washington State, have laws that limit a home owner's liability for a deficiency. Other states allow the lender to pursue the homeowner for a deficiency, without limitation. In most cases, the deficiency and subsequent liability for the deficiency stems from subordinate liens (e.g., second mortgage, home equity loans, etc.) that are not paid off from the proceeds of the sale. The only recourse for these subordinate creditors is to attempt to collect the unpaid debt from the borrower. If the borrower does not pay, then the creditor may sue. If a lawsuit is initiated, the only recourse for the borrower is to file for bankruptcy. A bankruptcy filing would stop the lawsuit and allow the borrower to eliminate the personal liability for the deficiency. For the unforunate homeowner who faces a deficiency judgment, bankruptcy is often the last and only line of defense.