Alabama has a lower foreclosure rate than many states in the union, but there are still thousands of homeowners facing the deficiency judgments Alabama has made legal. These deficiency judgments are designed to allow a lender to obtain the entire mortgage amount owed them. However, because the economy is weak, many lenders are waiting until former homeowners have increased their assets before requesting the court to issue a deficiency judgment. No one wants to have a possible judgment for tens of thousands of dollars hanging over their head for years, so it is wise for homeowners to learn how they can avoid such claims.
Deficiency Judgments in Alabama
Alabama allows deficiency judgments in any area of foreclosure or default on a mortgage in which the sale or transfer of a home does not equal the remaining mortgage debt owed. That includes:
- Foreclosed homes – when the auction sale price is less than the mortgage debt, or when the home does not sell at auction and the bank takes ownership. The property is then assessed at fair market value. If it is less than the mortgage debt amount, the lender may seek a deficiency judgment.
- Short Sales – when the homeowner attempts to sell their home but is unable to obtain enough to cover the mortgage debt. They may be able to negotiate with the lender to accept that lower rate. It is important to obtain this agreement in writing to avoid a deficiency judgment from the lender at some later date.
- Deed in lieu of foreclosure – when the homeowner transfers the property deed to the lender outright. The value of the home is generally assessed at fair market value. The lender can file a deficiency judgment for the difference between the fair market value and the original loan amount.
Foreclosure Procedures in Alabama
For most foreclosures, the mortgage contains a power of sale clause that gives a trustee the authority to sell the home if the owner defaults on their mortgage. Judicial foreclosures, in which the lender must go to court to obtain a final judgment of foreclosure, are rarer.
Getting Legal Help with District of Alabama Judgments
Deficiency judgments are more common in judicial foreclosures because the lender is already going to court to obtain the foreclosure order, so the additional cost and time of filing an additional claim are lessened. However, if a homeowner and a skilled foreclosure lawyer can provide the court with good reasons not to file their deficiency claim, or if they can find alternatives to foreclosure before it gets to that point, the client could save hundreds of thousands of dollars.
