CAN MY LENDER PURSUE ME FOR MONEY (DEFICIENCY) AFTER FORECLOSURE?
At the end of the foreclosure process, after the lender has obtained final judgment, a Sheriff Sale will occur. Sheriff Sales take place within individual counties, and the properties are sold to the highest bidders, or are sold back to the bank for $100, if the amount owed at sale is more than any buyer wants to pay. In either case, the home owner is entitled to a credit for the “fair market value” of the property. If the amount owed to the lender is more than the “fair market value” there is a deficiency. However, you don’t automatically owe that amount to the lender.
Do I Owe More Money Following a Sheriff Sale?
Many houses are “underwater,” meaning that the homeowner owes more than the house is worth. When a property goes to Sheriff Sale, the borrower is entitled to a credit for fair market value of the property. It doesn’t matter how much the property was sold for at the Sheriff Sale. The borrower gets a credit for the value of the property, and that amount reduces the total amount owed to the lender. Any additional amount still owed is known as the “deficiency.” For example, if the total amount owed on the mortgage is $250,000, and the fair market value of the property is $200,000, the deficiency would be $50,000. However, a borrower does not automatically owe this money to the lender. The lender must start a new lawsuit to seek a deficiency judgment. Essentially, the lender can legally come back for more money following a sheriff sale, but there are steps you can take to fight back against this. Additionally, very few lenders in New Jersey are pursuing deficiencies.
What Can You Do to Avoid a Deficiency Judgment?
While deficiency judgments are currently uncommon, they do happen. Many times, as part of the defense of the foreclosure, it is possible to reach a settlement with the lender, and they will agree that they will not pursue you for the deficiency. Additionally, if you receive a discharge from a Chapter 7 Bankruptcy that included the mortgage debt, the debt will be extinguished, and there can be no action for a deficiency.
My Home was Sold at a Sheriff’s Sale For $100. What Happened?
When your lender schedules the sale, they can choose to start the bidding at any amount, up to the total amount owed. Many times, the total amount owed is more than the property is actually worth. This can be called “underwater.” If the house is “underwater” and the lender asks the Sheriff to list the property for sale at the full amount owed, the Sheriff will be seeking to sell the property for more than it is worth. In those instances, no one will want to purchase the property at the Sheriff Sale and the lender will be forced to make a minimum bid of $100 or $1000, and they will own the property. In other words, if you owe your lender $250,000 when the house is foreclosed upon, and the current market value of the home is only $200,000, if the lender asks for $250,000 at the Sheriff sale, no one will buy the property and it will go to the lender for a minimum bid.
If you owe less than the market value of the home at the time of the Sale, you should file a motion with the Court and ask for time to sell the property so that you can keep your equity.
If your lender decides to sell it for less than market value, it will most likely be bought by a Third Party Purchaser.
Is It Too Late to Stay in My Home?
In New Jersey, homeowners have a unique opportunity to reclaim their homes even after a Sheriff Sale, thanks to a 10-day “right of redemption” period. During this grace period, the original homeowner has the right to recover their property by paying the full amount due to the lender. This can include the principal loan amount, accumulated interest, legal fees, and any other costs associated with the foreclosure process. This law provides an important last-ditch opportunity for homeowners to save their homes from foreclosure, offering a final chance to rectify their financial situation and maintain ownership. However, it is crucial to act promptly and decisively during this short window to avoid permanent loss of the property.
If you are facing foreclosure or are concerned about a deficiency action or judgment following a Sheriff Sale, contact Ira J. Metrick today.