Short Sale: Beware of Deficiency Judgment

A deficiency judgment is a judgment issued by the court against you making you personally liable for the unpaid debt to your lender on your mortgage loan in connection with a short sale or foreclosure sale on your property. Some states allow your lender to file a lawsuit against you to collect this unpaid debt plus costs and their attorney’s fees.  If the lender wins the lawsuit, they will try and enforce the judgment by either attaching your wages or going after your assets. Usually they won’t pursue your car or personal residence, but other more liquid assets such as bank accounts.

Likelihood of Lender Pursuing Deficiency Judgment

Although this is a fear among borrowers, in practice most lenders will not pursue a deficiency judgment because the costs involved exceed the amount owed, the lender knows the borrower doesn’t have the money or assets to pay the debt and it is difficult to track down the borrower afterwards. It is something borrowers should be aware of just to make sure they don’t fall into the category of borrowers that may be liable for a deficiency judgment being filed against them.

Consult with an Attorney

However, you should consult with your attorney or professional adviser to determine if you are at risk because not every state allows a deficiency judgment.  Borrowers should not be afraid to ask their lawyers how many deficiency judgments they have encountered and under which circumstances. Lenders still tend to avoid lawsuits against former clients.  Down the road, the borrower may end up obtaining another loan from that lender so lenders just shy away from this practice as much as possible. The lender’s attorneys will threaten to sue for deficiency judgments in foreclosure cases, but it’s more of a power play to get borrowers to pay their arrearages.  Although the possibility is real if your state allows deficiency judgments, it is probably not worth losing sleep over if your attorney feels the chances of your lender pursuing the judgment against you are slim.

Instances Where Deficiency Judgments are Not Applicable

• If your state laws do not provide for deficiency judgments, then they are not enforceable.
• Also, with regard to non recourse loans, deficiency judgments are not allowed. Non-recourse loans only allow lenders to pursue the collateral of your loan. So if you have a non-recourse home loan, the lender would only be allowed to foreclose on your home, and not obtain a deficiency judgment as well.    

• If you are in the process of Foreclosure or may be facing Foreclosing soon and need professional legal assistance, Submit your Case for a Free Review from a Foreclosure Attorney in your area to be aware of your options.

Content Related to Topic

• How A Short Sale Works
  The process and rules of Short Sales.
• Short Sale Risks
  The risks and potential negative consequences that may occur during the process of Short Sales
• Anti Deficiency Laws
  Same States have laws set in place against Defiency Judgments