Rep. Towns Introduces Bill to Alleviate Post-Foreclosure Financial Burden

Rep. Edolphus “Ed” Towns, D-Brooklyn, today introduced H.R. 3566, the Fairness in Foreclosure Act that will alleviate some of the financial burden for homeowners facing foreclosure.

Currently, foreclosure law is handled at the state level and varies widely. But in some states, banks have up to six years to pursue a homeowner for a deficiency judgment— that is, a money judgment against a borrower whose mortgage foreclosure sale did not produce enough funds to pay the underlying loan in full. In general, when a time frame is longer, it favors lenders over borrowers.

The Fairness in Foreclosure Act standardizes the length of time after a foreclosure that a mortgage company can bring a deficiency judgment against a homeowner, while also prohibit lenders from bringing a deficiency judgment against low-income borrowers.

The bill will provide the shorter of one year, or whatever the state law provides, as the time period during which lenders may bring forward a deficiency judgment action.

In New York, the law provides six months, so New York’s time period would not be pre-empted. However, the bill’s provisions would offer relief and help ease the process for hundreds of thousands of struggling homeowners across the country.

 “A deficiency judgment after foreclosure seems to be one of the greatest injustices that occur to homeowners after they have gone through the arduous foreclosure process,” said Towns. “Not only are they behind by thousands of dollars on their mortgage payments and facing public auction of their houses, the ordeal may continue indefinitely.”

In fact, in some states lenders have the option to pursue borrowers for deficiency judgments up to six years after the date of the foreclosure sale. If a borrower is sued for a deficiency judgment for the amount that the bank does not recover after a foreclosure sale, then they may have to pay tens of thousands of dollars years later for their one financial hardship.

If enacted, the bill would bring an additional layer of protection to borrowers going through foreclosure and also low-income individuals so that banks cannot bring action against them.