What Are Deficiency Judgments?

A deficiency judgment is a court order that makes you liable for an unpaid debt to a creditor.  In the case of a homeowner, a deficiency judgment can be issued by a judge when the home goes into foreclosure and sells at the sheriff’s sale for an amount less than what is owed to the mortgage lender.  The mortgage lender can then go after the homeowner for a deficiency judgment but needs to go through the proper channels of proper service.  Once it goes to trial or the homeowner does not show up in court, the judge can issue a deficiency judgment to the homeowner.

Deficiency Judgment: Case Study

Most mortgage lenders do not go after the homeowner on a foreclosure case.  However, on cases where a mortgage lender goes after a homeowner for a deficiency, the mortgage lender needs to file suit in court.  For example, if you default on your mortgage loan and the mortgage goes into foreclosure and then goes into auction at the sheriff’s sale and sells for a value lower than the mortgage loan balance due to the mortgage lender, the mortgage lender can decide to go after you for the deficiency.  Lets say you owe $300,000 on your mortgage loan and your property sells for $200,000 at the sheriff’s auction.  You owe the mortgage lender $100,000.  Most mortgage lender will charge off the $100,000 but some mortgage lenders may decide to go after you for the deficiency.  The ultimate result is a $100,000 deficiency judgment.  A mortgage lender can go after more than the $100,000.  The mortgage lender can sue for attorney’s costs, late charges, and fees associated with the foreclosure process.

Deficiency Judgment: Enforcement Of Deficiency Judgment

If you have little or no assets and nominal income, you are classified as judgment proof where a creditor cannot go after you.   A creditor cannot go after assets you do not have or exempt assets such as your home.  Most state laws protect a certain limit on the amount of money you earn before a creditor can garnish your wages.  Pension and retirement accounts are generally exempt from garnishment from deficiency judgment enforcement.

Deed In Lieu And Foreclosure Best Option To Avoid Foreclosure

If your lender is allowed to pursue a deficiency judgment, there is no way to know whether or not they will.  In many cases, your lender will not go to the trouble.  Legal action is expensive and time consuming, and people who just suffered a foreclosure often don’t have the assets or income needed to satisfy a deficiency judgment.  If you had the resources, you wouldn’t have missed your payments in the first place.

Deficiency Judgment After Foreclosure

Depending on the state, deficiency judgments on foreclosures might not be permitted.  As stated earlier, most mortgage lenders will not pursue with trying to collect the deficiency from your mortgage loan.  Filing a lawsuit is extremely expensive and time consuming.  If the mortgage lender realizes that you have very little or no assets, then the mortgage lender will probably not bother.  However, if the mortgage lender realizes that you have assets and substantial income, then the mortgage lender will most likely pursue in filing a lawsuit and try to collect on the mortgage deficiency.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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