Updated December 2011 By JinAh Lee, J.D.
Some states have laws that prohibit deficiency judgments and protect borrowers from having to pay a lender for losses following a foreclosure sale.
An "anti-deficiency law" is short-hand for a state statute that prohibits lenders from suing borrowers for deficiencies (the difference between the amount owed on a mortgage and the price at which a house is sold in foreclosure) on mortgages secured by a borrower’s principal residence. Anti-deficiency laws typically provide no protection for second or third mortgages, home equity lines of credit, and mortgages secured by vacation or investment properties.
Does Your State Allow Deficiency Lawsuits?
Most states allow lenders to go after borrowers for deficiencies. In most judicial foreclosure states (states where foreclosures go through the court system), lenders can request repayment of the deficiency as part of the foreclosure lawsuit. Some judicial foreclosure states require lenders to file a separate lawsuit to recover the deficiency. Most nonjudicial foreclosure states (states where foreclosures don’t need to go through court) require lenders to sue borrowers for the deficiency.
Many of the states that allow lenders to seek deficiencies cap the amount that lenders can recover to the difference between the outstanding loan amount and the house’s fair market value. For example, if the amount owed on your mortgage is $450,000, your house is sold in a foreclosure sale for $200,000, and the fair market value of the house is $300,000, in a deficiency lawsuit your lender can recover only $150,000 ($450,000 minus $300,000), even though the deficiency was actually $250,000 ($450,000 minus $200,000).
See the chart below to find out whether your state allows deficiency lawsuits.
Will Your Lender Sue You for the Deficiency?
Even if your lender has the right to sue you for a deficiency doesn’t mean that your lender will. Lawsuits are expensive, and many borrowers losing their homes to foreclosure have little in the way of income or assets for the lender to go after. But if you live in a state that allows deficiency lawsuits, and you’ve been thinking about filing for bankruptcy for other reasons, filing for Chapter 7 bankruptcy will wipe out your liability to repay any deficiency.
To learn more about using bankruptcy to stop or postpone a foreclosure, see Using Bankruptcy During Foreclosure.
State Foreclosure Laws
State |
What type of foreclosure is customary in the state? |
Are deficiency judgments allowed? |
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Nonjudicial |
Yes. |
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Nonjudicial |
Not in nonjudicial foreclosure. Allowed in judicial foreclosure. |
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Nonjudicial |
Not for mortgage used to purchase one- or two-family home on lot of 2.5 acres or less. Allowed for all other mortgages. |
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Nonjudicial |
Yes, but amount that may be recovered is limited to lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price. |
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Nonjudicial |
Not in nonjudicial foreclosure, and not in judicial foreclosure of mortgage used to purchase property with four or less units, one of which is borrower's primary residence. Allowed in all other foreclosures. |
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Nonjudicial |
Yes. If lender fails to bid fair market value for home at foreclosure sale, borrower can use this as a defense against the deficiency judgment claim. |
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Judicial |
Yes, but amount that may be recovered is limited to the difference between the outstanding debt and the fair market value of the house. |
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Judicial |
Yes. |
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District of Columbia |
Nonjudicial |
Yes. |
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Judicial |
Yes, but amount that may be recovered is up to the discretion of the court. |
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Nonjudicial |
Yes, if court confirms foreclosure sale. Confirmation requires evidence that property was sold for fair market value. |
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Nonjudicial |
Not allowed for nonjudicial foreclosure of mortgage executed after July 1, 1999. Allowed for all other foreclosures. |
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Nonjudicial |
Yes, but amount that may be recovered is limited to lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price. |
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Judicial |
Yes. |
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Judicial |
Yes, if borrower agreed to repay debt secured by mortgage in writing. Not allowed if borrower waives foreclosure waiting periods (as set out in Ind. Code § 32-29-7-3). |
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Judicial |
Yes. Not allowed if all of the following conditions are met: (a) lender chooses foreclosure without the right of redemption; (b) mortgaged property is a one- or two-family dwelling and is borrower’s primary residence; and (c) borrower does not exercise its right to demand a delay of the foreclosure sale of up to twelve months. |
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Judicial |
Yes, if court confirms foreclosure sale. Court may refuse to confirm sale if foreclosure sale price is inadequate. |
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Judicial |
Yes. |
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Judicial |
Yes. If lender uses executory proceeding (shortened judicial foreclosure process), deficiency judgment available only if property is appraised prior to foreclosure sale. |
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Judicial |
Yes, but amount that may be recovered is limited to the difference between the outstanding debt on the date of the foreclosure sale and the foreclosure sale amount. If lender purchases the property at the foreclosure sale, the amount that may be recovered is limited to the difference between the outstanding debt and the fair market value of the house. |
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Nonjudicial |
Yes. |
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Nonjudicial |
Yes. |
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Nonjudicial |
Yes. If lender is the purchaser at the foreclosure sale, borrower may defeat deficiency claim or reduce amount of judgment by showing the fair market value of the house was equal to the outstanding debt at the time of the sale or the foreclosure sale price was substantially less than the house’s fair market value. |
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Nonjudicial |
Not in nonjudicial foreclosure with redemption period of six months or five weeks (for abandoned properties). Allowed in all other foreclosures. |
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Nonjudicial |
Yes. |
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Nonjudicial |
Yes. |
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Nonjudicial |
Not in nonjudicial foreclosure. Allowed in judicial foreclosure. |
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Nonjudicial |
Yes, but amount that may be recovered is limited to lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price. |
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Nonjudicial |
Not if all of the following conditions are met: (a) lender is a financial institution; (b) mortgage loan originated on or after October 1, 2009; (c) property securing mortgage is a single-family dwelling owned by borrower at the time of the foreclosure sale; (d) mortgage debt was used to purchase the property; (e) property was borrower’s primary residence continuously from the time mortgage was executed; and (f) borrower did not refinance the mortgage. Allowed in all other foreclosures, but amount that may be recovered is limited to lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price. |
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Nonjudicial |
Yes. |
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Judicial |
Yes, but amount that may be recovered is limited to the difference between the outstanding debt and the fair market value. If lender gets deficiency judgment, borrower gets six-month right of redemption. |
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Nonjudicial |
Not in nonjudicial foreclosure of primary residence of low-income household. Allowed in all other foreclosures. |
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Judicial |
Allowed only if debtor was personally served with summons or appeared in foreclosure action. Amount that may be recovered is limited to lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price. |
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Nonjudicial |
Not if lender sold property to borrower originally. Allowed in all other foreclosures. If lender is the purchaser at the foreclosure sale, borrower may defeat deficiency claim or reduce amount of judgment by showing the fair market value of the house was equal to the outstanding debt at the time of the sale or the foreclosure sale price was substantially less than the house’s fair market value. |
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Judicial |
Not in foreclosure of property of 40 acres or less with four or fewer residential units, one of which is borrower’s primary residence. Allowed in all other foreclosures, but amount that may be recovered is limited to the difference between the outstanding debt and the appraised value. |
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Judicial |
Yes. |
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Nonjudicial |
Not in nonjudicial foreclosure if borrower sends written notice by certified mail to lender ten days before foreclosure sale that property is borrower’s homestead and that borrower elects against deficiency judgment. Allowed in all other foreclosures, but amount that may be recovered is limited to lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price. |
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Nonjudicial |
Not in nonjudicial foreclosure. Not in judicial foreclosure of property with four or fewer residential units, one of which is borrower’s primary residence. |
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Judicial |
Yes, but if lender is purchaser at foreclosure sale, amount that may be recovered is limited to the difference between the outstanding debt and the fair market value. |
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Nonjudicial |
Yes. |
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Judicial |
Yes. Borrower may petition court for appraisal within 30 days after foreclosure sale; amount that may be recovered would then be limited to the difference between the outstanding debt and the appraised value. |
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Nonjudicial |
Not in voluntary foreclosure (similar to deed in lieu of foreclosure). Allowed in all other foreclosures. In nonjudicial foreclosure, if lender is purchaser at foreclosure sale, amount that may be recovered is limited to the difference between the outstanding debt and the fair market value. |
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Nonjudicial |
Yes. |
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Nonjudicial |
Yes. Borrower may ask the court to determine fair market value at the time of the foreclosure sale; the amount that may be recovered is then limited to the lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price. |
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Nonjudicial |
Yes, but amount that may be recovered is limited to the difference between the outstanding debt and the fair market value. |
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Judicial |
Yes. In strict foreclosure (court orders transfer of property from borrower to lender without a sale), amount that may be recovered is limited to the difference between the outstanding debt and the fair market value. In typical judicial foreclosure, if lender is purchaser at foreclosure sale, amount that may be recovered is limited to the difference between the outstanding debt and the fair market value. |
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Nonjudicial |
Yes. |
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Nonjudicial |
Not in nonjudicial foreclosure. Allowed in judicial foreclosure. |
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Nonjudicial |
Yes. |
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Judicial |
Yes, unless lender waives right to deficiency judgment in mortgage document. Amount that may be recovered is limited to the difference between the outstanding debt and the fair market value. |
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Nonjudicial |
Yes. |
For more on money you may owe due to a foreclosure, see Debts After a Foreclosure.
