Deficiency judgement: A deficiency judgment is a monetary judgment against a homeowner whose mortgage foreclosure sale did not produce sufficient funds to pay the outstanding debt.
Deficiency judgement: A judgment issued by a court in response to a claim filed by a lender or bank which indicates that the sale on a foreclosed property did not cover the outstanding mortgage in full and therefore the homeowner is liable for the remaining balance.
A Homeowner’s Defense Against Deficiency Judgements
A deficiency judgment is a monetary judgment against a homeowner whose mortgage foreclosure sale did not yield sufficient funds to cover the outstanding mortgage loan in full.
In most states, the bank can file a lawsuit to recover a deficiency owed by the homeowner. However, the homeowner still has legal tools following foreclosure to combat deficiency litigation.
“The discovery that fraudulent documents were being filed in foreclosure cases has provided former homeowners an opportunity to defend themselves against lender’s attempt to pursue a deficiency judgment against them,” says attorney Larry Tolchinsky. “It may be possible to re-litigate issues in the underlying foreclosure cases, including the use of incorrect or fraudulent affidavits. By doing so, a lender may, among other things, lose their right to pursue a deficiency judgment against a former homeowner because the amount stated in the affidavit as being due and owning is incorrect.”
If the bank sues to recover the deficiency and wins, the court will issue a judgment instructing the homeowner to pay off the deficiency. If ignored, the bank attempt to place liens on other property owned by the homeowner, garnish their wages, or freeze their bank accounts.
According to attorney Todd Murphy, “Deficiency actions are more likely to occur when the borrower has other assets or is not delinquent on other loans, creating the appearance of the ability to repay. If the borrower is late everywhere and has no assets, the lender may instead issue a 1099 to the borrower, declaring the amount of the deficiency as a payment to the borrower.
“There are several defenses against deficiency judgments. One is a counterclaim regarding the fair market value of the residence. Another is negotiating a waiver of deficiency in the sale. The final defense would be a bankruptcy filing after a judgment.”