You may be thinking that if you have no equity, why bother with these remedies? Why not just stay in the home until you are evicted? Many people do. There are two reasons why you should not. First, it will ruin your credit. If there is any possible way to avoid foreclosure, the effort you make is worthwhile. A second reason is what is called a deficiency judgment. This means that if, after adding up what you owe on your loan, including the costs of the foreclosure, the sale does not fully reimburse the lender, you are personally responsible. If the home you used for collateral for the loan you took does not cover what you still owe, you are not just off the hook. The lender can go to court and get a judgment against you, and go after your wages and other assets.
Not all loans allow deficiency judgments. Some states do not allow them for the loan used to purchase your home, but do allow them for subsequent loans, such as the home improvement loan you got to put in the pool. One question you should always ask when applying for a mortgage loan is if it is a nonrecourse loan. A nonrecourse loan requires that the lender look only to the property for repayment. Regardless of the size of the loss the lender may suffer after foreclosure, it may not come after the borrower for reimbursement. In other words, deficiency judgments are not allowed.