Lenders After Deficiency


Lenders Coming After Past Deficiencies

Solving the Credit Conundrum: Helping Consumers’ Credit Records Impaired by the Forclosure Crisis and Great Recession


Chi Chi Wu, National Consumer Law Center, December 2013

B. Errors, Problems, and Anomalies

 The credit reporting damage from the foreclosure crisis was bad enough, creating an economic blacklist affecting millions of consumers. This damage is exacerbated and compounded by the errors, problems, and anomalies caused by servicers and lenders and the credit reporting industry. Examples of errors and anomalies include:

2. Servicers and lenders that seek to collect deficiencies after a short sale or a foreclosure.

Some servicers and lenders attempt to collect the “deficiency,” which is the difference between the amount realized at the short sale or foreclosure sale and the balance due on the mortgage. This tactic is arguably an unfair practice in a short sale where the lender has agreed to accept the sale proceeds knowing they are less than the mortgage, or in the many jurisdictions that prohibit a lender from recovering a deficiency after a foreclosure.

 Collection activities include reporting the deficiency as a collection item on the consumer’s credit report, with the resulting harm to the consumer’s credit score.12 These deficiencies are also often sold to third-party debt buyers, which are notorious for abuses they commit against consumers.13

On Sept. 24, 2013:
FHFA Can Improve Its Oversight of Freddie Mac’s Recoveries from Borrowers Who Possess the Ability to Repay Deficiencies:

FHFA Can Improve Its Oversight of Fannie Mae’s Recoveries from Borrowers Who Possess the Ability to Repay Deficiencies:


12] See, e.g., Rex v. Chase Home Fin. LLC, 905 F. Supp. 2d 1111 (C.D. Cal. 2012) (class action against lenders that attempted to collect short sale deficiency and reported plaintiffs’ failure to pay to credit reporting agencies).

13] See National Consumer Law Center, Fair Debt Collection § 1.5.4 (7th ed. 2011 and Supp.)