I have stated before in this blog that most large mortgage companies were not pursuing deficiency judgments after foreclosure. More recently, I have seen a few situations where second mortgage holders were suing the homeowners for personal judgments. The second mortgage companies were not suing for a deficiency judgment after the first mortgage foreclosed. Instead, these second mortgage holders have filed law suits against the homeowners to collect the underlying promissory note. This means that the mortgage company does not wait for a first mortgage foreclosure and does not initiate its own foreclosure on its second mortgage. After the homeowner misses few second mortgage payments, the second mortgage company accelerates the entire balance of the mortgage note (which is a standard provision of most notes) and sues the homeowner to collect the entire note balance. The mortgage company retains its second mortgage; any proceeds paid to the second mortgage company from a sale of the property would reduce the balance of the judgment.
Suing directly on the promissory note without foreclosure is common practice for commercial loans. Commercial lenders hold most loans in-house as contrasted with most conventional mortgages which were securitized and sold to investors. Commercial lenders rather get general judgments against the borrower than take back real estate which they cannot sell and which would not satisfy the loan. I have also seen isolated cases where small, local banks are suing borrowers directly on the note to collect residential first mortgages. These smaller lenders are following the lead of the commercial loan departments to seek personal judgments in lieu of taking back real estate. I have not seen any large banks or mortgage lenders sue homeowners directly on their notes rather than instituting foreclosure.