Can a mortgage company garnish wages?

A mortgage company does not automatically have the right to garnish your wages in a foreclosure, but it is possible.

In a mortgage, the only collateral pledged to the loan is the real estate. Before anything else happens, the mortgage company will take and sell the house, and use that profit to recoup as much of the loan as possible. If the sale of the property doesn’t fully cover what you owe, some states give mortgage companies the opportunity to recoup their losses. These states are called recourse states, and although the means by which they may seek repayment varies from state to state, they almost all include garnishing up to 25% of your wages.

Before it can garnish any wages, however, a company must first sue successfully for deficiency judgment. No action is allowed until a judge awards the mortgage company the right to collect on their debt. Fortunately, not all companies will pursue judgment because of the costs associated with the lawsuit.

However, wage garnishment does happen. And in some non-recourse states, it may only be the first mortgage where the lender is not allowed to pursue judgment. If you have a second or third mortgage, that lender may still be able to sue for the right to garnish wages.

Although unlikely, wage garnishment is a possibility for homeowners facing foreclosure. Check your state laws and regulations, as well as the terms of your mortgage agreement, to see where you stand.

The answer is "yes."  Depending on your state, wage garnishment could be a viable option for the creditor.  Mortgage, depending on where you live could be a first mortgage, second mortgage, UCC1, third mortgage, junior lien, etc.  If you are worried about garnishment you should check with a local attorney.  Hopefully questions will be answered for free.

The state you live in and the kind of mortgage you have are big influencing factors to determine whether your wages can be garnished for mortgage debt after foreclosure. If your house has been foreclosed upon, the lender can try to sell it. If the sale price is more than you owe, then you don’t owe anything more. If the sale is less than the amount you owe, the lender may try to collect the balance from you.

First, they’ll need a document giving them permission to sell the property to settle the debt – depending on the state, this is judgment against you or a deed of trust. Some states, called judicial foreclosure states, require the lender to take you to court to obtain a judgment against you, if you do not hand over the property voluntarily. If the lender wins, the judge will determine the amount you owe in the judgment and give the lender the right to sell the property.

Other states, called non-judicial states, allow the lender to use the deed of trust typically signed when you buy the house. This document in the sale contract gives the lender the right to sell the property in the event of default, eliminating the need for the lender to sue you for a judgment in order to get permission to sell the property.

Non-judicial states typically do not allow a first-mortgage lender to collect any left over debt after the property sale. There are some exceptions typically when the debt has the potential to include debt that isn’t related to the original purchase of the house, as is the case when the property has been refinanced or contains additional (second or third) mortgages or home equity lines of credit.

Judicial states differ in whether they allow recourse or not in the recovery of left over debt after a foreclosed property is sold.

In recourse states, the leftover debt is collectible by the first mortgage lender. If the property is in one of these states, the lender can pursue the collection of the balance after the sale (e.g. by garnishing your wages).

Recourse states (at the time of this writing):

• Alabama
• Arkansas
• Colorado
• Delaware
• District of Columbia
• Florida
• Georgia
• Hawaii
• Illinois
• Iowa
• Indiana
• Kansas
• Kentucky
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Montana
• Mississippi
• Missouri
• Ohio
• Nebraska
• Nevada
• New Hampshire
• New Jersey
• New Mexico
• New York
• Oklahoma
• Pennsylvania
• Puerto Rico
• Rhode Island
• South Carolina
• Tennessee
• Vermont
• Virginia
• West Virginia
• Wisconsin
• Wyoming

In non-recourse states, the leftover debt is typically not collectible by the first mortgage lender and your wages cannot be garnished. There are usually exclusions, however, that allow lenders of home equity lines of credit or additional mortgages to collect the leftover debt. One way to do this is by garnishing your wages.

Non-recourse states (at the time of this writing)

• Alaska
• Arizona
• California
• Connecticut
• Idaho
• Minnesota
• North Carolina
• North Dakota
• Oregon
• Texas
• Utah
• Washington

Foreclosure laws change frequently, so be sure to double check your state’s current regulations to find out whether it is judicial or non-judicial, recourse or non-recourse.

If you live in a state that allows the lender to collect any leftover amount after the sale of a house, you still have options to avoid garnishment of your wages. A foreclosure attorney can help you find out if any exceptions apply to you or if bankruptcy is a reasonable option.

The simple answer is that it's possible depending on which state you live in. If you don't make mortgage payments on time or in the full amount, you're in default on your loan. Before you're faced with foreclosure and the possibility of wage garnishment, defaulting on a mortgage will bring other serious problems. You'll add hundreds or thousands of dollars in fees to your existing balance which will make it more difficult to bring your account current. And even one late payment hurts your credit score, affecting your ability to get future loans and favorable interest rates.

If you do not have the ability to bring your loan current, your lender may pursue foreclosure or you may choose to do a short-sale, where your home is sold for less than the amount you still owe. Unfortunately in both cases, the lender can potentially file a lawsuit against you to recoup the difference between the amount you owe and for what the house is sold. If you lose this deficiency judgment, your wages could be garnished or you may even be forced into bankruptcy. Whether or not your lender pursues the deficiency amount will depend on state restrictions, legal costs, and the probability of collecting the debt based on your solvency. The deficiency amount must be large enough to justify the effort, and the lender must be reasonably confident he or she can collect from you.

If you're having trouble making mortgage payments, communicating your financial difficulties with your lender is critical to resolving the issues before they lead to losing your house and having your wages garnished. Lenders benefit more from payments over the life of a mortgage than they do from foreclosure, so they may very well be willing to offer loan modifications, repayment plans, or temporary reduction of payments. However, it is your responsibility to request help, and the longer you wait, the fewer options your lender will have to offer.