I'd like to know whether a person still own any money to a bank if his house ended up foreclosed?

From what I found out it says that yes and the borrower owns the difference that the bank sold the property for. If this is true is there a way to avoid this and prevent a bank to sell the house for less?

It could be a good business for a bank. Sell it to someone they know for $1 and have the borrower to pay the full price still.

Is the bankruptcy the answer? If so how one can turn to a bankruptcy status?

The market target Ohio, USA

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    "Sell it to someone they know for $1 and have the borrower to pay the full price still." Except, the borrower will probably wait 7 years until the debt disappears from his credit report without paying a single penny. Also contrary to popular belief, bank auctions of foreclosed properties are very easy to find out about. All it takes is one phone call to the bank. It's in the financial interest of the banks to have as much competition for its auctions as possible. A bank officer could try to sell a property only to a personal friend, but that would be fraud, fraud against the bank itself. – Stephan Branczyk Jan 26 '16 at 23:36

Yes, the borrower is responsible for paying back the full amount of the loan. Foreclosure gives the bank possession of the property, which they can (and do) sell. Any shortfall is still the borrower's responsibility. But, no, the bank can't sell the property for a dollar; they have to make a reasonable effort. Usually the sale is done through a sheriff's sale, that is, a more or less carefully supervised auction.

Bankruptcy will wipe out the shortfall, and most other debts, but the downside is that most of the rest of your assets will also be sold to help pay off what you owe. Details of what you can keep vary from state to state. If you want to go this route, hire a lawyer.

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  • @Grasper - most (all?) states have a homestead exemption that protects your home in a bankruptcy. – Pete Becker Jan 26 '16 at 20:30
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    it's funny if you say hire a lawyer. How can you pay him if you are bankrupt? – Grasper Jan 26 '16 at 20:31
  • what kind of payments does one how to make after the bank claims the shortfall? – Grasper Jan 26 '16 at 20:33
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    @Grasper - you'll find a way, or you'll have to do the bankruptcy yourself and probably end up far worse off. The lawyer's fees can be paid out of the bankruptcy estate (that is, whatever the bankruptcy court gets from selling your assets). – Pete Becker Jan 26 '16 at 20:33
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    Not necessarily. Many creditors, when they find out someone is handling their bankruptcy pro se, assume that the person doesn't even have money for a lawyer, and don't bother showing up for the hearings. For someone without significant assets and the ability to file the paperwork, it's not that bad an option. – Byron Jones Jan 26 '16 at 22:53

Generally, yes, although not in all states. According to this article in Time:

But in non-recourse states — Alaska, Arizona, California, Connecticut, Florida, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington — the bank has no recourse beyond the repossession of the property.

As for the question about what price the bank can sell it: again, each state makes its own rules, and states may have rules against selling it for much below market value.

Quick Google for "ohio state law foreclosure deficiency judgement market value" turned this up:

Limitation on Deficiency Judgments. The property cannot be sold at foreclosure sale for less than two-thirds of the appraised fair market value. (Ohio Rev. Code §§ 2329.20, 2329.17). (source: http://www.nolo.com/legal-encyclopedia/deficiency-judgments-after-foreclosure-ohio.html)

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  • well, that's nice but I was asking for Ohio. – Grasper Jan 27 '16 at 13:31
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    Since Ohio is not on the list of non-recourse states, the implication is that it is a recourse state. So the former owner would still be on the hook for the remaining balance. – stannius Jan 27 '16 at 20:47

It is in the bank's interest to sell the property for as much as they can (although it is doubtful they will put as much effort/time into selling it as the owner might). They will certainly not sell it for $1.

The main reason for this is that the bank would prefer to own $100k, than a loan to them from a customer for $100k.

Banks have to discount the value of loans to take into account the likelihood of the loan not being repaid. They classify certain loans as riskier than others, and these are discounted more heavily. An unsecured home loan to a customer that has already defaulted, has no collateral, and now needs to pay rent AND loan repayments would count as an extremely risky loan.

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  • I thought banks make money from interest rates, not solely from the cash money which they don't own anyway. – Grasper Jan 27 '16 at 13:30
  • @Grasper If the bank has 100k from selling your house, they can now lend that money to someone else who has a better shot at paying them back, with interest, than the person who just showed that they are incapable of paying it back as evidenced by the fact they were foreclosed upon. – Doyle Lewis Jan 27 '16 at 14:19

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