Upon Default by the Mortgagor a lender Forecloses on the mortgage. The unpaid balance of the loan is $XXX,000. The property is sold at public Auction and brings $XX,000. The lender then seeks a deficiency judgment against the mortgagor to recover the $XX,000 shortage, plus foreclosure expenses.
Deficiency Judgment defined as:
Court order authorizing a lender to collect part of an outstanding debt from foreclosure and sale of the borrower’s mortgaged property or repossession of property securing a debt, after a finding that the property is worth less than the book value of the outstanding debt.
Legislation enacted during the Depression still restricts the availability of deficiency judgments in several states. In some jurisdictions, deficiency judgments are proscribed 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 antideficiency legislation contravenes public policy and is ineffective.
Deficiency Judgment - A deficiency judgment is the result of a judicial foreclosure, the process by which a lender takes you, the borrower, to court in an attempt to receive a judgment for the amount that they claim you owe them above and beyond the principal and interest you owe on your loan.
The lender has 90 days to start the motion for a deficiency judgement after a foreclosure sale and the market value of the property must be determined by the court.
In most cases, lenders do not pursue homeowners who have lost their homes to foreclosure and thereby incur a deficiency judgment. Although they may receive a 1099 income statement, lenders realize that they average person who looses their home to foreclosure, most likely will not have the funds to make due on a deficency judgment.
In certain states, most notably California, homeowners may not be liable for any deficiency on their mortgage, provided that the mortgage you have on your home is the original one you took out when you purchased the home. This “purchase money” security interest provision means that under California law, you are not entitled to pay deficiencies on your mortgage unless you have refinanced the mortgage since you bought the home. 2nd mortgages which were taken out at the same time as the “purchase money” or original mortgage may also be covered by this provision, however you must consult a legal professional for advice pertaining to your own situation.
In most states, the lender will not pursue obtaining a judgment to cure deficiencies unless the amount owed as a deficiency is very substantial. This is due primarily o the high cost of working through the courts ina judicial foreclosure. Most lenders prefer a non-judicial foreclosure.
If you are seeking information about a deficiency judgment, chances are you are looking down the barrel of a trustee or sherrif sale of your property during a foreclosure.