When is a commercial loan subject to a deficiency judgment?

Think you need to know about the possibility of a deficiency judgment on a commercial loan? The first thing you probably need to do is pull out your contract and read the terms that cover what the remedy is that you and your lender have already agreed to should your loan default.

The very next thing that you should do is call your real estate attorney, hopefully before things get to the point where you have been foreclosed on and need to have a real concern about a deficiency judgment.

What is a Deficiency Judgment?

A deficiency judgment can be assessed when your commercial loan goes into default, and is sold at a foreclosure sale for less than the amount of your debt, making you responsible for the difference or deficiency.

Know Your Foreclosure Laws

There are different types of foreclosures which can happen on commercial property, judicial and non-judicial. Non-judicial foreclosures usually happen when a deed of trust is foreclosed on, and does not need court approval. It is more unusual for a deficiency judgment to be entered for a deed of trust foreclosure.

A judicial foreclosure happens before a court, and then can be followed by a separate proceeding to obtain a deficiency judgment. Judicial foreclosures can be time consuming and costly, and are often only pursued when the value of the potential deficiency judgment warrants the expense.

State Laws Vary

Laws concerning foreclosure proceedings and deficiency judgments are different state by state. Your attorney can explain what the law is in the state where your commercial property is located. Some states restrict deficiency judgments when the foreclosed property was secured by a deed of trust.

Get Legal Help

Your attorney should be consulted as early as possible in the process because he or she may be able to help you with a workout, or other alternative that will keep foreclosure from happening. If that is not possible, you need to be informed about the terms of your contract and how they line up with the laws in your state.