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.
If you are facing foreclosure or are concerned about a deficiency action or judgment following a Sheriff Sale, contact Ira J. Metrick today.