Can Your Wages Be Garnished for a Balance Left After Foreclosure?
A foreclosure is a legal proceeding in which the lender of a mortgage loan takes possession of a property after the borrower defaults on the associated mortgage loan. This usually occurs as a result of missed payments. Relinquishing the home in a foreclosure, however, may not legally remove the borrower's obligations when it comes to the mortgage loan and could lead to a wage garnishment.
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Deficiency
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After a foreclosure, a lender will sell the foreclosed home. The difference between what the lender receives from selling the home and the amount of the outstanding balance on the loan is called a deficiency. You are liable for this deficiency if you live in a recourse state, meaning you are personally liable for the payment of the mortgage loan debt even though you no longer own the house associated with that debt. In a non-recourse state, the borrower is not legally responsible for deficiency amounts.
Significance
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As a borrower in a recourse state, the lender reserves the right to pursue you for payment of that debt. Before seeking your assets, the lender must first sue you in civil court. The court will issue a deficiency judgment against you. The judgment will be for the amount of the deficiency sought by the lender. The lender can then seek to garnish your wages or money in your checking or savings accounts, depending upon your state's laws.
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Considerations
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Title III of the Consumer Credit Protection Act limits how much a creditor can take when garnishing your wages. According to the Department of Labor, a creditor can attach up to 25 percent of your disposable earnings or the amount of your disposable earnings that exceeds 30 times the federal minimum wage. The wage garnishment is not job specific. If you quit or lose your job before the deficiency amount is paid back, the lender can simply institute a new wage garnishment at your new job and begin collecting those funds again.
Exclusions
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There are limitations to wage garnishments, even if you owe a foreclosure deficiency. Your income cannot be garnished to pay for a deficiency judgment if it comes from Workers Compensation, Unemployment or Disability Benefits, Social Security benefits, Retirement Plan benefits or Public Assistance benefits. Also, in certain states, such as Texas, Pennsylvania, North Carolina and South Carolina, your wages are 100 percent exempt and creditor wage garnishments are not permitted. In Florida, wages are 100 percent exempt if you're the head of household; otherwise, 75 percent of wages are exempt from creditors.
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