What determines whether your lender will come after you after a foreclosure sale in order to collect the deficiency amount between what you owe and the proceeds from the foreclosure include whether your state is a judicial foreclosure state or a non-judicial foreclosure state; whether your home loans are affected by recourse or non-recourse theories of recovery; and whether your loan is a one mortgage or a multiple mortgage. Wage garnishment is one of the means through which creditors can collect the amount outstanding after the sale of your property but the lender in most cases have to first acquire a judgment against you before garnishing. However not all foreclosing parties need to file a lawsuit against you to garnish your wages but those do not include mortgage companies and private lenders.

Judicial foreclosure and non-judicial foreclosure states

In a judicial foreclosure state, your first mortgage company must instigate a lawsuit against you in your state court before they can foreclose and take the property if you are not willing to give it back to them voluntarily. If the bank wins the case, the court will grant a judgment in the bank’s favor of a specific dollar amount, giving the bank the right to sell the property.

In a non-judicial foreclosure state your mortgage company can foreclose on your property without the court process and the bank’s right to foreclose is derived from the additional document that you signed during the purchase of the home.

Once the bank has sold the house and the proceeds exceed what you owe, you will be safe from further pursuit regarding the mortgage debt. If that is not the case which is the most common scenario that the foreclosure proceeds will not cover your mortgage debt and depending on the factors below the bank may garnish your wages in pursuit of this deficiency.

Wage garnishments in non-judicial foreclosure state

Unless these exceptions apply your first mortgage lender cannot collect the deficiency from you:

i)       Purchase money or mortgage refinance

Purchase money refers to loans taken by a borrower in order to buy the house. After the foreclosure sale of this property the lender is not allowed to collect the difference from you. In the case of refinancing your house, some states allow creditors to collect outstanding amounts so long as the act within the given deadlines.

ii)      Second and third mortgages plus Home Equity Lines of Credit (HELOCs)

The first two are allowed to collect the balance. HELOCs are liens on your property thus they are allowed to collect as well.

iii)     Judicial foreclosure in a non-judicial foreclosure state

Your first mortgage company may opt to file a lawsuit against you despite not being necessary, the court will extend to him/her a limited chance of garnishing the wages to collect the balance.

Wage garnishments in a recourse and a non-recourse state

Recourse; the first mortgage company is allowed to collect the balance and among the channels they can use include wage attachments or placing liens on assets you own or confiscating the property. However, the states may differ on how and when they can collect as well as on the remedies.

Non-recourse; your first mortgage company cannot come after the foreclosure sale but there exist some exceptions because some states allow HELOCs to continue collecting after foreclosure.