What Is a Deficiency Judgment?

A deficiency judgment is a court judgment that a mortgage lender gets against a homeowner after a foreclosure. Many states prohibit deficiency judgments, but Virginia, Maryland and the District of Columbia all allow them. Different states impose different limits on when a lender can pursue a deficiency judgment. But the basic premise is the same. The lender comes after the homeowner to try to get more money than was generated by the sale of a foreclosed home.

Obtaining a Deficiency Judgment

A home (as real property) secures a mortgage loan. Since a mortgage is a secured loan, mortgage lenders are not supposed to lose money on their loans. Mortgage lenders are protected if the buyer doesn’t pay. If the homeowner fails to pay as promised, the lender can foreclose on the home and sell it at auction. The money from the sale should pay for all foreclosure costs, including the outstanding balance on the mortgage loan.

Unfortunately, in recent years, falling property values coupled with banks giving unconventional loans or generous home equity loans have led to many people owing more on their properties than their homes are worth. When this happens, the bank may not get all of its money back when it forecloses on a house. For example, if a house is worth only $150,000 but the homeowner owns $175,000 on it, then the mortgage lender is going to be at least $25,000 short (plus foreclosure fees and costs).

A deficiency judgment allows the lender to come after the debtor homeowner to get that extra money — or the $25,000 in the above example. The mortgage lender can go to court and get a deficiency judgment against the homeowner. The court will order the homeowner to pay the balance of the mortgage loan above and beyond what was obtained through foreclosure.

Enforcing a Deficiency Judgment

Unfortunately, most people who been through foreclosure cannot simply satisfy (pay) a deficiency judgment. In those case, the lender will enforce the deficiency judgment through liens against property or garnishment of bank accounts or wages. Owing more money on a home the person no longer owns may seem unfair. A deficiency judgment can also make it very difficult for someone who has just faced foreclosure to get back on his feet.

While lenders don’t always pursue deficiency judgments, it is very important to respond quickly. You must be proactive to prevent a deficiency judgment. An experienced foreclosure and debt relief attorney can help you if your lender is pursuing a claim against you. You can also prevent the risk of a deficiency judgment by pursuing alternatives such as a short sale or a deed in lieu of foreclosure. An attorney can explain all of these options and help you to achieve the best outcome possible. If you are in a situation where you are not able to pay your mortgage debts, don’t go it alone.

Avoiding a Deficiency Judgment

The best way to avoid a deficiency judgment is to avoid the foreclosure altogether. If you are facing foreclosure, assess your options. Discuss your situation with an attorney familiar with the issues facing you. Most people cannot afford to have their wages garnished, bank accounts frozen, or credit destroyed by a foreclosure. Call Lee Legal immediately to determine what your options may be.