St. Louis Bankruptcy Lawyer Frank Ledbetter recently learned of mortgage lender CIT's efforts to collect a deficiency balance on a mortgage loan after it foreclosed on a homeowner's first mortgage. Historically in Missouri, mortgage lender's tended to only attempt to collect deficiency balances (the amount still owed on a foreclosed mortgage after deducting the sale proceeds which the mortgage lender received from the loan balance owed at the time of foreclosure) for second or third mortgages on residences and on properties used for commercial purposes.
In this instance, CIT filed a proof of claim for in excess of $300,000.00 in unsecured, non-priority debt, the amount CIT said the client still owed after deducting its sale proceeds. CIT had foreclosed on this client's mortgage and received over $238,000.00 in foreclosure sale proceeds. Because the client is in a Chapter 13 bankruptcy case, only several thousand dollars will need to be paid to this creditor and that amount due to the value of non-exempt assets owed by the Chapter 13 bankruptcy client.
In some states, mortgage lenders may not legally collect a deficiency balance after the foreclosure of a residential first mortgage. However, such collection is legally allowed in Missouri. This type of deficiency balance, however, may be discharged in Chapter 7 bankruptcy and in most cases fully discharged in Chapter 13 bankruptcy.