The lender can’t wait indefinitely certain states may have a specific time frame (usually between 3 – 12 months) during which lenders have to file for a deficiency judgment. How Does a Deficiency Judgment Work?Ī deficiency judgment can be awarded to a lender by a court, giving the lender the right to claim the money debtors owe them to cover the deficiency.īefore they can file for a deficiency judgment, your lender needs to have been awarded a foreclosure judgment and held a foreclosure sale of your home. Since each state’s laws regarding deficiency judgments may be different, contact an attorney to learn more about the rules in your state. So if you’re in a position where you are at risk of foreclosure, check your specific state laws to find out if there are deficiency limits.
For example, some states have strict limits on how much money a lender can claim in a deficiency judgment, while others require the amount owed on a property to be under a certain threshold before allowing an anti-deficiency law to kick in. The majority of states permit deficiency judgments and currently, the only states with anti-deficiency statutes or nonrecourse laws are:Īlso, each state has specific laws on how and when it will and won’t grant a deficiency judgment. Keep in mind that even though a lender has a right to get a deficiency judgment against you, they may not choose to exercise that right. While some states prohibit deficiency judgments following a foreclosure sale, most states still allow lenders to pursue the money they’re owed.
Involves a lender (the creditor), a debtor (the borrower) and the court that issues the deficiency judgment to the lender.Can affect borrowers who owe more on their mortgage than their home is worth (the mortgage is underwater).Takes effect if the lender elects its right to come after the debtor for the deficiency, and a deficiency judgment is granted by the court.What Is a Deficiency Judgment?Ī deficiency judgment is a court ruling that gives your lenders the right to take money or other assets from you to cover the remaining balance of what you owe them. Following the foreclosure sale, the lender can choose to pursue a deficiency judgment, which is a court ruling allowing the lender to recover the remaining amount of money that you owe them. The difference between the sale price and the amount still owed on the mortgage is known as a deficiency. Many borrowers think their debt to the lender is settled with that sale, but sometimes, the sale price doesn’t cover the total amount owed to the lender. You can help prevent foreclosure by making your payments on time and communicating with your lender, but sometimes life hits unexpectedly hard, making it difficult or impossible to pay your mortgage.Ī single late payment isn’t necessarily cause for concern, but if you continually fail to make payments on your mortgage and can’t make other arrangements with your lender, your lender will eventually foreclose on the home and sell it at auction.
As a homeowner, you don’t plan on having to deal with foreclosure – and hopefully, you won’t ever have to.
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