In Michigan, foreclosing on a home or selling it in a short sale doesn’t necessarily erase the home owner from paying back the debt. They still may owe thousands of dollars in debt on the home, and lenders are now collecting — even years or decades later.

The state law mostly has gone unenforced, until recently. But with plummeting property values pummeling the state, lenders are now finding it a solution to curtail their mounting debt. As such, lenders are going after borrowers for unpaid balances on home loans in what is called “mortgage deficiency,” plus adding legal fees and interest too.

Lenders can pursue the home owners to pay the difference between what the property is eventually sold for and what was owed on the home. Lenders have up to six years to sue the home owners to reclaim the bad debt. If granted, they can pursue the borrower to recover the debt for a decade, and even renew that judgment for another decade or indefinitely until they collect.

The only way borrowers can avoid being held liable for the outstanding debt is by getting a release from their lender in a short sale or in foreclosure cases if they file for Chapter 7 bankruptcy, the debt will be completely erased.

There are a lot of folks walking around now who don't understand that in three or four years they're going to wake up and have letters coming in from debt collectors, Dan Lievois, a short-sale expert and chief executive of Devon Title Agency in Troy, Mich., told The Detroit News. That's what's sad.

Michigan foreclosures have skyrocketed since 2006, and home prices in the state have dropped 34 percent in the past decade.

Source: “Even After Foreclosure, Debt Collectors Still Pursue Borrowers for Repayment,” The Detroit News (Feb. 16, 2011)