Foreclosure in itself can cause emotional distress and hurt your credit, but these days, many individuals are finding that foreclosure is only the beginning of their financial and credit woes.  Proceeding foreclosure may lie a series of other unfortunate events, now, commonly including getting hit with a lawsuit that could leave you liable for more debt than you may have ever expected.

If there is a “deficiency,” or difference between what you owed on your mortgage pre-foreclosure and the the proceeds your lender is finally able to squeeze out of the property after the foreclosure, you may find yourself being sued for precisely what lies in between.  If you’re found liable, the debt is likely to be far more than you or your credit score can bear.

Before the mortgage crisis, lenders were unlikely to pursue debtors after a foreclosure or short sale.  Today, with so many defaulted loans, banks seem ready to pick up the slack in proceeds in any way they can.  With the relatively low cost of filing a law suit, suing for even a relatively small debt by bank standards can be worthwhile.  In most states, banks are allowed several years to determine whether or not they will sue. 

How do you know whether you’ll be sued post foreclosure?  Unfortunately, there may be no sure way to tell.  Your chances may vary somewhat according to your state as state laws do vary.  Several states have “judicial foreclosure” that allow lenders to easily sue borrows for “deficiencies” while other  states have instituted restrictions that make it harder for lenders to go after borrowers.  You may want to seek legal council to determine what is legal in your state.  Also, bear in mind that the lender of your home equity loan or second mortgage may be able to sue you for a deficiency gap after your foreclosure as well.

Credit repair specialists advise that, when faced with eminent foreclosure or short sale, that you take some precautionary steps to do all that you can to lessen the likelyhood of further damage to your credit.  Carefully examine paperwork before all short sales and foreclosures.  Communicate with your lender and work to negotiate a settlement to reduce what you owe if possible.  Continue to consult with experts throughout your foreclosure process, including credit repair specialists, to ensure your credit is damaged as little as possible along the way.