Deficiency Judgment in Foreclosure

Deficiency Judgment in Foreclosure

A deficiency judgment in foreclosure is a court order that allows a lender to collect the difference between the amount owed on a mortgage and the amount recovered from the sale of the foreclosed property. This situation arises when a property is sold at a foreclosure auction for less than the outstanding balance of the mortgage.

In a foreclosure process, if a borrower defaults on their mortgage payments, the lender may initiate foreclosure proceedings to recover the property. Once the property is sold, typically at a public auction, the proceeds from the sale are applied to the outstanding mortgage balance. If the sale price is insufficient to cover the total debt, the lender may seek a deficiency judgment against the borrower to recover the remaining amount.

For example, if a homeowner owes $300,000 on their mortgage, but the property is sold at foreclosure for only $250,000, there is a deficiency of $50,000. In this case, the lender may pursue a deficiency judgment for that amount, allowing them to potentially garnish wages, place liens on other properties, or take other legal actions to collect the debt.

However, the ability to obtain a deficiency judgment varies by state. Some states have anti-deficiency laws that limit or prohibit lenders from pursuing deficiency judgments in certain types of foreclosures, particularly non-judicial foreclosures. It is essential for borrowers to understand the implications of deficiency judgments in their state to navigate potential liabilities following foreclosure.