![]() ![]() (2022, April 15.) Factors that affect the housing market. Everything you should know about a home appraisal. ![]() (2022, December 5.) What Is the Foreclosure Process? Nolo. RELATED: The Full List of All Judicial and Non-Judicial Foreclosure States in the U.S. In states with such laws in place, the lender is generally prohibited from pursuing the borrower for the deficiency. Keep in mind that borrowers who file for bankruptcy may be able to nullify the deficiency judgment and avoid paying the deficiency.ĭeficiency judgments are only allowed in U.S. While this lack of immediate pressure on the borrower can be beneficial, it also puts them in an uncertain position, particularly when the lender decides to collect. The lender has a limited amount of time, typically years, to obligate the borrower to pay the deficiency, depending on state law. If the sale proceeds are less than the outstanding mortgage balance, the lender may put a lien on the borrower’s personal assets, garnish their wages, or use a third-party debt collector to collect the deficiency. To obtain a deficiency judgment, the lender must take legal action against the homeowner and obtain a court order. does not prohibit mortgage lenders from legally chasing debtors to avoid losses.Ī deficiency judgment is a court order that allows a lender to collect the difference between the outstanding mortgage balance and the sale proceeds of a foreclosed property. This way, the lender can justify that the amount accepted from the foreclosed home was fair and any attempts to collect the uncovered portion of the mortgage debt are reasonable and done in good faith.īY THE NUMBERS: Only 12 states have anti-deficiency or non-recourse laws, so most of the U.S. To prevent this right from being abused, the lender must commission a professional appraisal and come up with comparable listings. In reality, though, borrowers (even lenders) might not have fully understood the risks when taking out the loan. Borrowers should also make adequate down payment to avoid negative equity, which occurs when the outstanding mortgage balance exceeds the property’s value. Ideally, lenders should only lend up to the property’s appraised value to avoid the risk of a deficiency. In other words, if John’s property is located in the states in gray on the map below, the lender may demand additional payment from John. Assuming the property is in a state with no anti-deficiency laws, the lender could then pursue a deficiency judgment against John to collect this amount. In this scenario, the deficiency is $50,000, which is the difference between the outstanding mortgage balance of $150,000 and the sale proceeds of $150,000. The lender foreclosed on the property and sold it at a foreclosure auction for $150,000. After a few years, John fell behind on his mortgage payments and eventually defaulted on the loan. Let’s say John took out a mortgage of $200,000 to purchase a property that was worth $250,000 at the time. The difference between the sale proceeds and the mortgage balance, if any, is known as the deficiency. Deficiency in real estate is the loss that a mortgage lender may incur when selling a foreclosed home.Īfter taking ownership of a foreclosed property, the lender may attempt to sell it to recover the outstanding mortgage debt. ![]()
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