A lien holder, whether it be the first mortgage, second mortgage, HELOC, etc., has the legal right to continue chasing any person obligated on the debt, even after the sale of the home. However, the action must be brought within three months to one year depending on the lien position of the creditor. And in the case of the foreclosing lender, the defendant had to be named in the foreclosure action. More often than not, it is the subordinate lien holder that bring these deficiency actions whereas they likely received nothing from the sale. For those people considering a "short-sale" or "deed-in-lieu", be certain that there is a written agreement by all lien holders to waive their rights to pursue a deficiency.
Bankruptcy prevents any lien holder from pursuing a deficiency action: The lien holder may be able to foreclose if payments are not made on the debt, but they will be prevented from chasing the individual thereafter. The tax consequences which often result from a lender's "forgiveness of debt" will also be avoided where a borrow has filed for bankruptcy protection.
If you are in a foreclosure situation, don't hesistate to contact one of our mortgage foreclosure defense attorneys today to help you with your situation.