Like most states, Oklahoma allows deficiency judgments against property owners—such as homeowners—whose loans are not fully paid off by the proceeds of selling their property at foreclosure.
What Is a Deficiency Judgment?
Foreclosure is a remedy available to a lender (such as a bank) when the borrower (the homeowner) doesn’t pay a mortgage. The lender can then take possession of the property by foreclosing on it, in a process conceptually similar to an auto lender repossessing a car that’s not been paid for. The lender then sells the property, applying the proceeds of the sale against the amount the borrower owes under the mortgage.
Ideally, the foreclosure and sale of the property should pay off the outstanding balance of the loan. However, when a property is “underwater” or “upside down” on its loan—such as is not uncommon in a declining real estate market, or when the borrower had taken out an interest-only loan—the remaining balance on the loan will greater than the amount the property brings in. In that case, there will be a “deficiency,” or an outstanding balance left after the foreclosure sale.
Oklahoma Allows Deficiency Judgments
In most states, lenders are not limited to collecting what could be brought in by the foreclosure sale. Instead, the lender has a right to be paid in full—even if that requires more than the property is then worth. When there’s a deficiency, the lender can sue the borrower for that remaining balance. A deficiency judgment is what results when a lender sues for the remaining amount and wins, obtaining a court judgment for the money (the deficiency).
Oklahoma is one of the many states that allow a lender to seek a deficiency judgment. The state does provide borrowers a little more protection than many other states do:
- There’s a time limit (90) days for bringing deficiency judgments, so the threat of them can’t hang over the borrower indefinitely
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The most the borrower could owe as a deficiency is the difference between the outstanding loan and the then-fair-market value of the property, which prevents the borrower from being put in an even-worse-than-expected place simply because their former property fetched only unusually low bids at the foreclosure auction or sale.
How an Attorney Can Help
If you threatened with foreclosure (and a possible or definite deficiency judgment), contact an attorney. A lawyer can defend you (if there are defenses—unfortunately, that’s often not the case, since if you haven’t paid your mortgage, the bank has recourse against you), negotiate with the lender for a better settlement, and advise you as to when you might want to consider bankruptcy.
