Deficiency

Deficiency: Amount still owed after a mortgage is foreclosed.

Deficiency: The amount by which the revenue collected at a foreclosure sale falls short of satisfying the outstanding debt.

When a Foreclosure Deficiency Is Open to Interpretation

When a homeowner ceases to make mortgage payments — or breaches the mortgage loan contract in some way — the lender bank is entitled to foreclose. During foreclosure, the property will be sold to pay the outstanding mortgage loan, yet when the total debt owed exceeds the sale price, the remaining difference will be considered a deficiency.

In most states, in order to recover the deficiency from the homeowner, the bank must file a separate lawsuit.

A deficiency can also be the result of a short sale. If the bank agrees to sell the home in a short sale to cover the lien, the result may be a deficiency if the property sells for below the amount owed, meaning the homeowner may be liable for this amount.

The deficiency amount can be a question of interpretation. In North Carolina, a homeowner, who appealed a deficiency judgement against them, won after the court decided that the owner’s assessment that the foreclosed property was sold below its market value had merit.

“The Court of Appeals specifically held that an owner of real estate is presumed to be competent to give an opinion as to its value. The Court also held that the defendants’ sworn statement that the collateral was “worth the amount of the debt” should be interpreted as stating a specific value, and thus the affidavit created a genuine issue of material fact—that is, the value of the property at the time of the foreclosure sale, that had to be decided by a jury,” says bankruptcy attorney Lance P. Martin.

If the North Carolina decision stands, it could result in fewer deficiency lawsuits, since banks would have to weight their possibilities of obtaining a positive outcome at trial.

“Debtors now have an inexpensive method for forcing the matter to trial where they can hope the jury sides with them on the property’s value. The United Community Bank decision, if it stands, invariably will result in fewer deficiency actions being brought and more claims being resolved by discounted settlement,” Martin says.

Deficiency

Deficiency: Amount still owed after a mortgage is foreclosed.

Deficiency: The amount by which the revenue collected at a foreclosure sale falls short of satisfying the outstanding debt.

When a Foreclosure Deficiency Is Open to Interpretation

When a homeowner ceases to make mortgage payments — or breaches the mortgage loan contract in some way — the lender bank is entitled to foreclose. During foreclosure, the property will be sold to pay the outstanding mortgage loan, yet when the total debt owed exceeds the sale price, the remaining difference will be considered a deficiency.

In most states, in order to recover the deficiency from the homeowner, the bank must file a separate lawsuit.

A deficiency can also be the result of a short sale. If the bank agrees to sell the home in a short sale to cover the lien, the result may be a deficiency if the property sells for below the amount owed, meaning the homeowner may be liable for this amount.

The deficiency amount can be a question of interpretation. In North Carolina, a homeowner, who appealed a deficiency judgement against them, won after the court decided that the owner’s assessment that the foreclosed property was sold below its market value had merit.

“The Court of Appeals specifically held that an owner of real estate is presumed to be competent to give an opinion as to its value. The Court also held that the defendants’ sworn statement that the collateral was “worth the amount of the debt” should be interpreted as stating a specific value, and thus the affidavit created a genuine issue of material fact—that is, the value of the property at the time of the foreclosure sale, that had to be decided by a jury,” says bankruptcy attorney Lance P. Martin.

If the North Carolina decision stands, it could result in fewer deficiency lawsuits, since banks would have to weight their possibilities of obtaining a positive outcome at trial.

“Debtors now have an inexpensive method for forcing the matter to trial where they can hope the jury sides with them on the property’s value. The United Community Bank decision, if it stands, invariably will result in fewer deficiency actions being brought and more claims being resolved by discounted settlement,” Martin says.

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