Are deficiency judgments allowed in Washington State? Yes and no, which means the better question is when are deficiency judgments allowed in Washington?
Overview: What Are Deficiency Judgments?
When a property is foreclosed upon by a lender for non-payment of the mortgage, the lender takes possession of the property and can sell it, typically at a foreclosure sale or auction. The proceeds of the sale, less certain costs of the sale, are then applied against the mortgage, hopefully to pay it off. However, that doesn’t always happen; sometimes—especially in today’s housing market—the remaining balance on the loan is more than the property or house is worth. This is usually referred to as the property being “under water” on the loan, and when this is the case, there is a remaining balance—or “deficiency”—owed to the lender even after the property has been foreclosed upon.
A deficiency judgment, therefore, is when the lender sues the borrower to recover the remaining amount owed (the deficiency) on the loan.
No Deficiency Judgment for Non-Judicial Foreclosures
Washington offers lenders a streamlined “nonjudicial” process for foreclosing. (“Nonjudicial” means, in this context, without going to court.) The mortgage must have been set up the correct way, with a “power of sale” clause allowing the lender to foreclose nonjudicially; however, if it was, the lender has the option of using this nonjudicial process, which is faster and cheaper than going to court for a judicial foreclosure.
However, as the old saying goes, “there ain’t no free lunch.” In this case, what the lender “pays” for using the nonjudicial foreclosure process is that it gives up its right to a deficiency judgment. So if the lender forecloses without going to court, it can’t also sue the borrower for any deficiency.
Judicial Foreclosures Allow Deficiency Judgments
In addition, Washington also has a judicial foreclosure process, or one in which the lender goes to court to obtain a judgment for foreclosure. If the lender either has to use the judicial foreclosure process (i.e. the mortgage does not contain the correct language or terms) or chooses to do so, then it can pursue a deficiency judgment, and look to recover any additional amounts owed by the borrower.
How an Attorney Can Help
If you are the lender, a lawyer can help you decide which form of foreclosure is in your best interest, all things considered. If you are the borrower, a lawyer can defend you from an attempt to recover a deficiency judgment (though, of course, lawyers can’t work miracles; sometimes the facts are simply such that you will have to pay), or, even if there is no way to avoid the judgment entirely, can often negotiate or settle the judgment for less than it would be otherwise.
