A deficiency judgment is a judgment lien against a debtor, defendant or borrower whose foreclosure sale did not produce sufficient funds to pay the mortgage in full. This option may or may not be available to the lender, depending on whether they have made a recourse or non recourse loan.
The fuller, statutory definition as defined by New York is: “the whole residue, or so much thereof as the court may determine to be just and equitable, of the debt remaining unsatisfied, after a sale of the mortgaged property and the application of the proceeds, pursuant to the directions contained in such judgment, the amount thereof to be determined by the court as herein provided.
The plaintiff’s attorney (in other words, the bank’s lawyer) must make a motion to receive such a deficiency judgment. Otherwise, the amount gained from the sale shall be deemed the full amount owed, and the plaintiff has no right to collect the additional debt. However, if the parties (mortgagor and mortgagee) have already agreed in their mortgage or promissory note, then the debtor could be liable for the full amount.
A debtor who has a deficiency judgment should see an attorney for possible remedies, including bankruptcy, an exemption from creditors,an appeal, or a motion. As with all legal research sources on-line, Internet users should take caution before applying such advice to your own case, and perhaps should consult an attorney.
Example: Upon Default by the Mortgagor a lender Forecloses on the mortgage. The unpaid balance of the loan is $102,000. The property is sold at public Auction and brings $80,000. The lender then seeks a deficiency judgment against the mortgagor to recover the $22,000 shortage, plus foreclosure expenses.
Deficiency States
Legislation enacted during the Depression still restricts the availability of deficiency judgments in several states. In some jurisdictions, deficiency judgments are prescribed in certain situations, while in other states, they are limited to the amount by which the debt exceeds the fair market value of the property. Waiver, the intentional relinquishment of a known right, of the benefits conferred by anti deficiency legislation contravenes public policy and is ineffective.
In non-deficiency states like Arizona a lender is unable to pursue any type of a deficiency judgment. Concerning foreclosures non-deficiency states are advantageous to owners in foreclosure because the lender is unable to pursue the deficiency judgment. (If you live in Arizona and want to walk away from an upside down house visit www.overforeclosure.com.)
The good news is many lenders do not pursue deficiency judgments because someone that has lost a house to foreclosure is a poor candidate for collections on a deficiency judgment.
For more information on foreclosures and how to complete short sales visit www.kickassshortsales.com.
Author: Gerald Romine
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California is effectively a “no-deficiency-judgement” state. To be more clear, it’s *possible* to get a deficiency judgment in California, but there is a kink: the lender has to foreclose through a lawsuit in order to do this, which never happens.
That’s because Californa lenders are subject to two regulations that work in favor of the borrower:
1. When pursuing any secured obligation like a home loan, they are required to try to collect from the colateral first, before going after the debtor; and
2. California has something known as the “One Action Rule”: when collecting a debt, you only get one shot at it (kind of like a “no-double-jeopardy” thing).
So how does that help the borrower? Well, most loans in California are secured with a Trust Deed, rather than a Mortgage. A Trust Deed allows the lender to foreclose on a house non-judicially, without going to court. This is much cheaper and faster that foreclosing judicially (in court), so it is inevitably what the lenders do. Foreclosing through the courts is slow and expensive, and unless the borrow has a TON of assets, it’s just not worth it. However, you can’t get a judgement through non-judicial foreclosure; you can only get the property.
So in order for the lender to get a deficiency judgment, they’d have to go to court.
BUT: here comes that pesky “one action” rule. Guess what? By foreclosing non-judicially, the lender has exhausted their one shot. Now they *can’t* go to court for a deficiency judgment!
The lend *could* of course, start out by foreclosing in court (judicial foreclosure), and then get a deficiency judgment as part of that proceeding after the foreclosure sale has occurred, but in practice it never happens.
There’s also outright ban on deficiency judgments in California when the loan is a “purchase-money loans”. Purchase-money loans (as opposed to a refinance) are non-recourse: you can’t go after the borrower, ever. You can only go after the collateral property (for 1-4 unit owner-occupied props).
For these reasons, deficiency judgments are effectively non-existent in California.