Being Sued for Mortgage Balance Deficiency in a Foreclosure

You don’t mention where you are writing from, which is key information: it is state law that governs a foreclosure deficiency judgment. A “deficiency judgment” is what it sounds like—a judgment against a debtor to pay any amount left on a loan because the value of foreclosed property was deficient and could not pay off the remaining mortgage in its entirety.

Some states allow foreclosure deficiency judgments, in which case, in the facts as you describe them, you could indeed be sued for the extra $50,000. Other states do not necessarily allow deficiency judgments, though even there, there’s a wrinkle: some states (like Arizona, for example) put an occupancy requirement into their anti-deficiency statute. This requires that the property have been occupied (typically by the owners, not tenants) as a primary residence for some period of time prior to the foreclosure. If the occupancy requirements are not met, a bank may bring an action to get a deficiency judgment.

Even when banks can obtain deficiency judgments, however, they often do not: they reason, quite understandably, that if the debtor didn’t have enough money to pay the mortgage, he or she doesn’t have enough to pay the judgment, which makes obtaining one a waste of money and effort. Still, if you’re in a state which allows deficiency judgments, it is a risk you face.

You should consult with a real estate attorney, who can explain the process and your potential exposure.