A foreclosure can have a devastating impact on your personal life, as well as your finances. Foreclosure also appears on your credit report, and can severely impact your ability to obtain loans and credit cards in the future. If you receive an inheritance after a foreclosure, the amount you inherit may also be at risk.
Foreclosure Deficiency
In a foreclosure, the mortgage lender sells your home, usually at a public auction or through a real estate agent. However, the sale price of the home may not be enough to pay off the balance of your mortgage, or to pay for costs incurred by the lender such as auction fees, court costs, appraisals and attorney fees. Even though you no longer own the home, most states allow the lender to hold you responsible for paying the deficiency, which is the difference between the sale price and the mortgage balance and foreclosure costs.
Foreclosure Judgment
In states that permit collection of a deficiency after foreclosure, the mortgage lender can typically sue you for the deficiency amount. Unless you can prove that you already paid the deficiency or raise another valid defense to the lawsuit, the court will issue a judgment against you for the deficiency. This permits the mortgage lender to seek recovery of the deficiency by using several strategies, including seizure of your personal assets. These assets could include an inheritance you receive after foreclosure.
Locating an Inheritance
After obtaining a foreclosure judgment against you for a deficiency balance, the lender may require you to disclose your income and assets -- this allows the lender to identify money and property it can use to satisfy your debt. If the creditor petitions the court for a debtor's examination hearing or written interrogatories after you receive an inheritance, you must disclose the amount you received. The creditor can then petition the court for a writ of execution, which permits the seizure of your inheritance to pay against the deficiency.
Considerations
Although a mortgage lender may try to take an inheritance to satisfy a deficiency, state exemptions may protect some or all of the money you inherit. For example, Indiana permits an exemption of $4,000 in personal property, which may include money or assets received by inheritance. If the creditor seeks payment of your debt through seizure of your inheritance, you must typically claim any eligible exemptions through the court to prevent losing the money.
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