A deficiency judgment is a monetary award granted to a lender by a court when a borrower fails on a mortgage loan and the lender cannot collect the whole amount owing via the sale of the foreclosed property.
A deficiency judgment occurs when a borrower still owes money to the lender after the lender has foreclosed on their house and sold it to fulfill the mortgage obligation. The amount by which the loan principal exceeds the profits from the sale of the foreclosed property is the amount of the deficiency judgment.
When a borrower fails to repay their mortgage loan, the lender has recourse in the form of a deficiency judgment. When a borrower fails to make payments on a mortgage loan and is in default, the lender may commence foreclosure procedures, in which the property is sold to settle the obligation. If the revenues from the sale of the property are insufficient to completely repay the debt, the lender may pursue a deficiency judgment to reclaim the remaining sum.
How is the Property Sold?
In the case of a deficiency judgment, the property is normally auctioned in a foreclosure sale. This is a legal procedure in which the lender or a third party authorized by the lender sells the property to pay off the outstanding mortgage obligation. The sale is normally held at a public auction, and the earnings are used to repay the mortgage debt.
If the revenues from the sale of the property are insufficient to repay the debt completely, the lender may pursue a deficiency judgment to reclaim the remaining sum. In certain areas, the lender may put a lien on the borrower’s other assets, such as a bank account, to collect the shortfall judgment.
A party or the court might place a lien on any of your assets to secure debt payment. A lien grants the lender a claim on the assets until the loan is completely paid off. This implies that the assets cannot be sold or transferred until the lien is first paid off. The court may enforce a lien by directing the seizure and sale of assets to settle the obligation if required.
How is the Deficiency Obtained?
A deficiency judgment is acquired via a judicial procedure that usually starts after the property has been sold at a foreclosure auction. If the revenues from the sale of the property are insufficient to repay the loan completely, the lender may sue the borrower for a deficiency judgment.
The lender must establish that the borrower failed on the mortgage loan and that the property sale did not produce enough funds to repay the debt completely. If the court finds a shortfall, it will grant the lender a deficiency judgment and require the borrower to pay the outstanding debt.
After obtaining a deficiency judgment, the lender has many collection options, including wage garnishment, bank account levies, and the sale of other assets. To collect the deficit judgment, a party may levy your accounts, such as a bank account. A levy legally confiscates money from a bank account to pay off a debt. After they levy your accounts, the money in the account is frozen, and the lender can collect the cash to pay out the deficit judgment.
How Do I Know If My Lender Can Sue for the Deficiency?
The ability of a lender to seek a deficiency judgment is determined by the laws of the state where the property is situated. Some jurisdictions have rules that prevent or limit a lender’s ability to pursue a deficiency judgment after a foreclosure sale. In some states, the lender may be allowed to collect the shortfall via a mortgage deficiency judgment only if the mortgage expressly indicates so.
It is crucial to understand that although a lender may seek a deficiency judgment, they are not necessarily obligated to do so. Some lenders may decide not to pursue a deficiency judgment because legal processes and collection costs may exceed the possible reward.
Judicial foreclosure is a legal procedure in which a lender pursues a court-ordered property sale to recover a mortgage obligation that has not been paid off. The lender must go through the court system to acquire a court order approving the sale of the property in a judicial foreclosure. The court supervises the property sale to ensure that it is performed fairly and in compliance with the law. The court may impose a deficiency judgment if the selling revenues are insufficient to cover the mortgage obligation.
Judicial foreclosure is utilized in places where the sale of a foreclosed property requires a court order. Non-judicial foreclosure, on the other hand, is a faster and less formal procedure that does not need court intervention in certain jurisdictions. Because the availability of judicial foreclosure and the processes for obtaining a deficiency judgment after a foreclosure sale differs by state, it is critical to research your state’s laws to understand your rights and duties.
What If You Can’t Pay Your Deficiency Judgment?
If a deficiency judgment is not paid, the lender has many collection measures, including wage garnishment, bank account levies, and asset sales. The lender may also renew the judgment regularly, enabling them to continue collecting the debt for a certain amount of time, usually up to 20 years or more, depending on state rules.
A borrower unable to pay a deficiency judgment may file for bankruptcy. In a bankruptcy proceeding, the borrower may petition the court to discharge (eradicate) their obligations, including the deficit judgment. If the debt is discharged in bankruptcy, the lender can no longer collect it, and the borrower is no longer legally obligated to pay the deficiency judgment.
However, it is crucial to remember that not all debts are dischargeable in bankruptcy. The dischargeability of a deficiency judgment is determined by numerous criteria, including the kind of debt and the laws of the state where the property is situated. Some states have statutes that render deficiency judgments non-dischargeable in bankruptcy, which means the borrower is still obligated to pay the debt even after the bankruptcy is discharged.
In general, filing for bankruptcy may impact a deficiency judgment by giving the borrower temporary protection from collection attempts while the bankruptcy case is underway. If the debt is discharged in bankruptcy, the deficiency judgment is null and void, and the borrower is no longer obligated to pay the obligation.
However, if the debt is not dischargeable in bankruptcy, the deficiency judgment will remain, and the lender will be able to collect the obligation even after the bankruptcy case is completed.
Do I Need to Hire a Lawyer?
If you are facing foreclosure or a deficiency judgment, it is always a good idea to seek the opinion of a knowledgeable foreclosure lawyer.
A foreclosure and a deficiency judgment may have serious repercussions, including losing your house, garnishing your wages, and having your bank accounts or other valuables seized. A foreclosure lawyer can assist you in understanding your rights and duties and provide legal advice on the best course of action for your specific circumstance.
An attorney may also represent you in court, negotiate with the lender on your behalf, and assist you in understanding your alternatives, such as negotiating a settlement, filing for bankruptcy, or defending against the foreclosure or deficiency judgment.
If you are facing foreclosure or a deficiency judgment, you must move quickly to preserve your rights and limit the penalties. Contacting a skilled foreclosure attorney will help you through this stressful and confusing circumstance.