In a judicial foreclosure, the lenders claim will be first heard by the court. The court will then issue orders which would then allow the lender to foreclose.
Process
In simple words, judicial foreclosure is when the lender brings a lawsuit against the homeowner. If the homeowner does not respond or prevail in the lawsuit, the mortgage lender wins the lawsuit and the home is put up for sale by auction. A court official presides over this auction and sells the seized house to the highest bidder. The mortgage lender also puts in a bid during the auction. This bid's amount can go up to the amount owed on the home loan. If no bidder beats the mortgage lender's bid, the mortgage lender gets the title to the home. However if the bidding goes higher than the lender’s bid amount, then the winning bidder is issued the deed to the house.
Deficiency Judgment
Deficiency judgment is a court order authorizing a lender to collect part of an outstanding debt from foreclosure and sale of the borrower's mortgaged property or repossession of property securing a debt, after a finding that the property is worth less than the value of the outstanding debt.
Fair Value
Fair value is defined as the fair market value of the home, as of the date of the foreclosure sale, without any reductions for the adverse impact of the foreclosure and the right of redemption that would temporarily lower the market value of the home. If the price at which the home is sold at a foreclosure is less than the unpaid balance of the indebtedness secured by the home, resulting in a deficiency, any action brought must within the statute of limitation prescribed by state law. The homeowner against whom such a recovery is sought can request that the court to determine the fair value of the home as of the date of the foreclosure sale. The following factors are considered for determining fair value:
- expert opinion testimony
- comparable sales
- anticipated marketing time and holding costs
- cost of sale
- the necessity and amount of any discount to be applied to the future sales price or the cashflow generated by the property to arrive at a current fair market value.
If the court determines that the fair value is greater than the sale price of the home at the foreclosure sale, the homeowner entitled to an offset against the deficiency in the amount by which the fair value, less the amount of any claim, indebtedness, or obligation of any kind that is secured by a lien or encumbrance on the home that was not extinguished by the foreclosure, exceeds the sale price.
Getting Legal Help
If you are facing an action for deficiency judgment, you should consult an experienced foreclosure attorney. An experienced foreclosure attorney can request the court to make a fair value determination and if the fair value determined by the court exceeds the sale price, you may can offset it against the lender’s claim.
