Avani Lebau from Edwards, CO 

Posted on Wednesday, January 5, 2011

Hello Shari, I recently losr my job and had a baby, my husband and I are considering letting our primary residence go into foreclosure. We have an FHA mortgage and live in Colorado, which is the only public trustee foreclosure state. Is there any way that we might be assessed with a defficiency judgement after the foreclosure sale (we are underwater. What does the FHA insurance cover? Does it cover the attorney fees?

Shari's Response

Dear Avani - First, so everyone if clear, the FHA insurance is for the lender, not you. FHA will reimburse the lender and then come after you to get reimbursed themselves. I would not be surprised - depending on who is in office - if a few years out FHA decides to not come after folks, but you cant count on that.

In terms of the other possible impacts on you, this is big enough to merit speaking with a local lawyer. It should not require more than an hour of time. If you prepare a brief, clear, unemotional summary of everything and email it in advance it could take evne less time. Check out the tips on this and other blogs for how to find the right legal help. You may be liable for some or all of the deficiency, there may be tax implications, and credit report ramifications to consider, all of which will cost you. I strongly suggest investigating the possibility of a short sale to mitigate some or all of these problems.

Good luck!