Deficiency judgment law is different in every state. Typically, non-judicial foreclosure states, where foreclosures are conducted by private trustee sales, don’t allow deficiency judgments. States where foreclosures are conducted by judicial foreclosure (court approval) generally do allow them. The best advice is to check your state laws to confirm. A deficiency judgment can be obtained by your lender against you if you have a remaining loan balance after your home is sold at a foreclosure sale, or after you participate in a short sale or deed in lieu. However, collecting on the judgment may be difficult for your lender if you don’t have any assets. So most of the time, lenders do not pursue them.
Avoiding Judgment
Even if your state does allow a deficiency judgment, you can avoid a judgment under the following circumstances:
- By negotiating in writing with your lender that you are not liable to them for any remaining amounts owed on your loan balance and that all sale proceeds satisfy your mortgage debt.
- If you and your lender both participate in the voluntary government pre-foreclosure HAFA program, the program guidelines do not allow your lender to go after you for a deficiency judgment.
- Filing bankruptcy. If you file bankruptcy, you can avoid a deficiency judgment. The bankruptcy court will discharge any mortgage debt owed to your lender after a foreclosure sale.
Since deficiency judgment law can be complex, you should speak with a real estate foreclosure defense attorney. Educating yourself regarding the foreclosure basics is a smart idea so that you know what to expect and can protect yourself.
Why Lenders Don’t Like to Pursue Deficiency Judgments
Lenders do not like to pursue deficiency judgments against former customers because there is always a change they may want to do business with you down the road. There are some lenders that do pursue them if they know the borrower has assets that they can go after to collect on the judgment. However, the majority of borrowers do not have significant assets. If they did, they would sell them and avoid foreclosure or pre-foreclosure. Another reason lenders don’t seek these types of judgments is they cost the lender time and money. Also, half the time lenders don’t even know where to serve the borrower because the borrower has moved out of the area or the state. While you should be aware of the foreclosure basics involving deficiency judgments, the chance that your lender will decide to pursue one against you is slim.
Foreclosure Defense Attorney
A foreclosure defense attorney is an expert in foreclosure law and deficiency judgments. The attorney can help you form a defense to avoid foreclosure, and negotiate a resolution with your lender.
