If the bank pursues the mortgage deficiency, it re-opens the foreclosure suit. As we know from today's mortgage and title climate, right now in most states, the courts are mired (many to a stand-still) with foreclosure cases.
The prospective "buyer" to a property would have to wait for the finalized judgment in order to purchase the property and that could take YEARS.
In NJ, the borrower has a ten (10) day right of redemption after the sale in which he can redeem the property or object to the sale. If the borrower objects to the sale, the redemption period lasts until the sale is confirmed or until the court rules on the objection.
Within three (3) months of the sale, the lender may sue the borrower for a deficiency judgment.
If the lender sues for a deficiency judgment, the borrower is given the right to bring an action to redeem the property within six (6) months of the date that the deficiency judgment is entered. Source: State Website: www.njleg.state.nj.us
The property "sold" at foreclosure sale is not really sold and it could take anywhere from 3 - 9 months (or more) to know for sure as to who actually owns the property: Foreclosed Owner or Foreclosure Buyer.
So, you can see the concern from the title end. Although there is underwriting language for mortgage deficiencies along with addl foreclosure exceptions, the Underwriters like to see the title cleaned up as much as possible.
I am sure if in NJ, this became the normal lender practice, the Underwriters are going to create additional language to exclude the deficiency judgments from coverage.
And, the buyers of REO's would start writing in certain deficiency clauses into their sales contract offers.
Just my 2 cents worth
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