Will my son be liable for mortgage debt after foreclosure in Montana?

Full question:

My son is in the military and is behind on his mortgage payments. He owes 162,000.00 on a property worth about 140,000.00. There is a first and second mortgage on the property. If this is foreclosed on will he be liable for what is not paid off with proceeds from the sale? This property is in Montana. He is also considering bankruptcy but this would be his last choice. He is also aware of the SMCRA but would rather no longer deal with the property. What do you suggest given the information I have just supplied?

• Category: Real Property
• Subcategory: Foreclosure
• Date: 04/07/2025
• State: Montana

Answer:

If the property is foreclosed in Montana, your son may still be liable for any remaining mortgage balance after the sale. This is known as a deficiency judgment, where the lender can pursue the borrower for the difference between what is owed and what the property sells for.

Your son has several options to consider:

• Loan Workout: This involves modifying the original loan terms. Changes may include forbearance, deferment, or renegotiation of payment terms.
• Deed in Lieu of Foreclosure: Your son can voluntarily transfer the property title to the lender to settle the mortgage debt. This can help avoid foreclosure on his credit report, but it does not guarantee forgiveness of any remaining debt. It's important to document any agreement for debt forgiveness in writing.
• Short Sale: This option allows the property to be sold for less than the mortgage amount, with the lender accepting the sale proceeds as full payment. This can also prevent foreclosure from appearing on his credit report.
• Short Payoff: In this scenario, the lender accepts a lesser amount than what is owed as full payment without requiring a sale.

Your son should explore these options and consult with a financial advisor or attorney for personalized advice. Bankruptcy is a significant step and should be considered carefully.