Can You Foreclose A Property With A Money Judgement?

In a Nutshell

A deficiency judgment is a court order granting a lender the correct to collect a deficiency balance. A deficiency balance is the amount of money a borrower owes a lender even after the lender has foreclosed on the borrower'southward dwelling house. This can occur if the property is worth less than the balance on the mortgage loan.

The prospect of losing your home to foreclosure is bad. But things could get worse if the value of the property is less than what y'all withal owe on the mortgage. If this happens, you lot could owe your lender a deficiency balance. This is the departure between your mortgage balance and what your home sells for at a foreclosure auction. Your lender could go a deficiency judgment from the court allowing them to collect this deficiency balance. Simply each state handles deficiency judgments differently, so read on to accept a closer wait.

What Is Foreclosure?

When someone wants to buy existent estate, such as a dwelling, they often accept to borrow coin to make the buy. Ane of the most popular types of loans used to do this is the mortgage loan. This is a blazon of secured debt that uses the borrower'south belongings every bit collateral for the loan. Simply if the borrower defaults on the mortgage loan, the lender commonly has the right to foreclose on the property. During foreclosure, a lender takes and sells the borrower's property and uses the proceeds to pay off the mortgage loan debt.

The 2 almost common types of foreclosure are judicial and nonjudicial. In a judicial foreclosure, the lender files a lawsuit to become a court order, which allows the foreclosure to proceed. In a nonjudicial foreclosure, the lender tin can prevent on a property without a courtroom order.

Both foreclosure types begin with a borrower missing multiple mortgage payments. The lender then sends a letter to the borrower telling them to become electric current with their mortgage or take a chance defaulting. If the borrower can't make upwardly the missed payments, the lender will either ship the borrower a Notice of Default or begin a foreclosure lawsuit. Assuming the borrower isn't successful in contesting the foreclosure, the property goes to a foreclosure auction. After the property gets sold, the borrower will have to leave, either on their own or through an eviction.

Foreclosures are devastating for homeowners. They non only result in the loss of your home only also crusade significant damage to your credit score.

What Is a Foreclosure Deficiency Judgment?

Lenders sell foreclosed backdrop so they can utilize the greenbacks from the sale to pay off the mortgage debt. But sometimes, in that location isn't enough money from the sale to fully pay off the mortgage loan amount. When this happens, the remaining amount is called a deficiency residual.

A deficiency judgment is what the lender receives later on a court approves their request to collect the deficiency balance. After getting the deficiency judgment, the lender can then take steps to collect the remaining balance. A popular tactic involves garnishing wages. Deficiency judgments don't just exist with foreclosures. They can also come post-obit a short sale or deed in lieu of foreclosure.

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Foreclosure Deficiency Judgment Laws

State laws for deficiency judgments differ widely. For example, in some states, lenders aren't immune to collect deficiency judgments for habitation foreclosures. These jurisdictions accept special non-recourse laws that prohibit mortgage companies and lenders from filing deficiency lawsuits. These state laws make it easier for homeowners to walk away from their mortgages.

Despite these protections for borrowers, these laws don't utilize to all borrowers or in all situations. Many of these anti-deficiency judgment laws only protect homeowners who lose their primary residence to foreclosure afterwards defaulting on their first mortgage. And so if the foreclosure involves a vacation house or a second mortgage, then a deficiency judgment may still be possible. Another potential exception involves homes acquired through short sales. Here, lenders tin can sometimes get a deficiency judgment.

In states where deficiency judgments are permitted, lenders may exist express on what they can recover. For example, the deficiency residuum could be express to the difference between the debt and the fair market value of the property. This is in contrast to a deficiency rest that involves the mortgage debt residual and what the property sells for at a foreclosure sale.

How a Deficiency Judgment Works

A deficiency judgment tin only be issued if a borrower has violated the terms of their promissory note. The promissory notation is the contract that borrowers sign promising to repay the lender the money they're borrowing. The exact procedure for getting a deficiency judgment depends on if the foreclosure was judicial or nonjudicial.

In a judicial foreclosure, some states brand the lenders ask the courtroom for a deficiency judgment as a part of the underlying foreclosure case. Other states may brand lenders wait until after a judicial foreclosure to become the deficiency judgment. In a nonjudicial foreclosure, the lender has to wait until they consummate the foreclosure. And so they sue the borrower to become the deficiency judgment.

If a lender sues for a deficiency balance after the foreclosure action, they must testify to the court that the property sold for a reasonable price. In other words, the court wants to make sure the lender didn't accept a depression-ball offer on the home. The lender must testify that the foreclosure sale cost was comparable to other foreclosed properties in the area.

After getting a deficiency judgment, the lender has multiple ways to collect the deficiency residuum. The nearly mutual options include:

Wage garnishment:Wage garnishment occurs when an employer takes a portion of each of a borrower's paychecks and sends it to the lender. The full amount garnished from each paycheck is typically limited to 25% of the borrower'south dispensable income.
Bank business relationship levy: These are similar to garnishments in that the lender gets a courtroom order to have money from a borrower. In this case, they take it out of the borrower's bank account instead of their paycheck. States differ on how much money the lender can take through a banking concern account levy.
Property lien: A lien is a legal right that a creditor attaches to a borrower's belongings to protect the creditor'due south ability to collect a debt. A lender may identify a lien on the borrower's property to forbid them from selling the holding until the debt gets paid.

How To Avoid a Deficiency Judgment

If you're in a state that allows deficiency judgments, you have several options to avoid them. Offset, you can file bankruptcy. Some deficiency balances are dischargeable in defalcation. this will depend on which type of defalcation you file.

Second, you can nowadays evidence in court showing the foreclosed belongings'due south selling price wasn't reasonable.

Third, if yous're thinking about a curt auction or act in lieu of foreclosure, y'all tin can enquire your lender to waive its right to a deficiency judgment. Some banks and mortgage foreclosure companies will concur to do this.

Fourth, you tin accomplish a settlement with your lender. Going to court for a deficiency judgment tin can be expensive. As a result, lenders may be willing to forego their right to collect the full amount of the deficiency. In render, they get a lump-sum cash payment for part of the deficiency residuum amount.

Allow's Summarize...

A deficiency judgment is a court order granting a lender the right to collect a deficiency balance. A deficiency balance is the amount of coin a borrower owes a lender even later the lender has foreclosed on the borrower's dwelling. This tin can occur if the property is worth less than the balance on the mortgage loan.

To get a deficiency judgment, most lenders need to request one from the court. Depending on the type of foreclosure, this can take place during the foreclosure process or afterwards. Once a lender receives the deficiency judgment, they can collect the coin through wage garnishment, a bank business relationship levy, or a property lien. Borrowers tin sometimes avoid a deficiency judgment by filing bankruptcy or negotiating with their lender.

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Written By:

Attorney Curtis Lee

Curtis Lee is a author and co-possessor at Marvel Colina Freelance. Curtis earned his Available of Science in Concern from Wake Forest University and his Juris Doctor from Villanova University School of Law. Afterward graduating law school, Curtis had the honor of clerking for a state cou... read more than almost Attorney Curtis Lee

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