Understanding the Deficiency Judgment
September 5, 2009 | Short Sale
A Deficiency Judgment is when a lender sues a homeowner, that has defaulted on their mortgage, for the difference between the mortgage payoff and what the lender was able to receive from the sale of the property. Not all states’ foreclosure laws allow the lenders to sue for a deficiency judgment. Check your state’s foreclosure law
If your state allows for a deficiency judgment, then your lender may pursue a deficiency judgment whether they foreclose and your property sells at the sheriff’s sale, you short sale your property, or your lender accepts a deed in lieu.
Being sued for a deficiency judgment seems to be one of the biggest concerns of homeowners that are in foreclosure. Not only have the homeowners been struggling financially and are at risk of losing their home, they may be burdened with additional financial hardship having to repay tens of thousands of dollars years into the future. Futunately, this is not typically the reality for the majority of homeowners, lenders usually will not pursue a deficiency judgment.
After the foreclosure the lender would have to sue the foreclosed homeowner for the deficiency judgment. This means hiring an attorney, paying fees and court costs. Even with a deficiency judgment, the lenders know that they may never be able to collect on the judgment. After all, the lenders understand that the homeowners financial hardship may prevent them from making any payments towards the deficiency judgment. The lender has already lost money on the loan and on the costs of foreclosing, therefore they are reluctant to put any more money into a lawsuit.
The bottom line is that lenders rarely pursue deficiency judgments unless they know that the homeowners have other assets of value worth pursuing, such as cash, real estate and personal property. While the possibility of a deficiency judgment exists, the lenders recognize that suing the homeowners is not in their best interests in the majority of cases.
