A foreclosure can be a devastating event in a person's life. Losing you home in New York due to foreclosure is awful enough, however, it may not be the end of your financial concerns. Given the loss in home values during a recession, your foreclosed home may actually be worth less than what you owe on it. In this case, it is possible that a deficiency judgment can be taken out against you personally and you would owe the lending institution money beyond that generated by the foreclosure.
Motion for Deficiency Judgment
In the state of New York there are six requirements that need to be met in order to file a motion for deficiency judgment. Those six steps are:
- An obligation to pay debt
- The Property Value must be Less Than the Amount of Debt
- Defendant Named in the Foreclosure Summons and Deficiency Motion
- Personal Service of Foreclosure Summons and Deficiency Motion
- The Debt Cannot Have Been Discharged by Bankruptcy Court
- The Judgment for Deficiency Must Be Collectable
Obligation to Pay Debt
The first requirement that must be met in order to file for a motion of Deficiency Judgment in New York is that a note, or if there is no note, the mortgage itself must include a covenant to pay the indebtedness. If the mortgage was arranged with a guarantor who made a promise to pay then a deficiency judgment may be filed against the guarantor following the same steps that would be taken against the mortgage holder - in other words, he/she must be included as a defendant in the foreclosure complaint.
Property Value Less Than Amount of Debt
The second requirement is that the Fair Market Value of the foreclosed upon property must be less than what the mortgage holder owes the lender. The Fair Market Value is determined by the court based on the appraisal conducted on the property at the time of the Foreclosure Sale. The amount bid at the sale may be irrelevant in this determination. The amount the mortgage holder owes the lender also includes prior liens and taxes owed by the mortgage holder, though credits and offsets, such as rent monies collected will be taken into consideration.
Defendant Named in Foreclosure Complaint
The third stipulation, according to New York Law, is that there must be a foreclosure complaint that specifically names the person against whom the deficiency judgment is sought. It must also include a demand for deficiency.
Service of Foreclosure Summons and Deficiency Motion
The fourth requirement for a deficiency judgment is that the Foreclosure Summons and the Motion for a Deficiency Judgment both be served personally upon the individual against whom the deficiency judgment is being filed.
The Motion for Deficiency must be served within 90 days of delivery of the Referee's Deed (used to convey title sold during a foreclosure sale). If there is difficulty in performing a personal service of the Motion for Deficiency, the court may make other arrangements, but the 90-day rule must be strictly followed. Those who hold second mortgages are permitted to file for a deficiency judgment after the 90-day period, however, they must move for this deficiency judgment as quickly as possible.
Debt Not Discharged by Bankruptcy Court
The fifth requirement is a restriction. One cannot seek a deficiency judgment if the debt has been discharged through bankruptcy court. The debt is secured by the property of the debtor and the lender is limited by it. The lender can file an obligation to discharge if fraud was involved in the loan application.
Judgment for Deficiency Collectable
The last requirement is also a practical point and that is, is the deficiency judgment a sum that can actually be collected from the debtor? Sources available need to be considered; they include:
- The debtor's income
- Other assets available to the debtor
- The total amount of the deficiency
- The probability that the debtor will file bankruptcy
Seek Legal Counsel
As with most cases involving foreclosure and bankruptcy, if you are facing or pursuing a deficiency judgment you should seek the advice of a competent attorney. An attorney who specializes in this type of law will be able to best guide you through the intricacies of property law.
