A deficiency judgment is a court order giving the mortgage lender the right to collect from the borrower the deficiency--the balance of a mortgage that is not fully satisfied from the proceeds of a foreclosure sale. When a lender is awarded a deficiency judgment, the borrower is personally liable for the amount of the deficiency.
As an example, consider a borrower who took out a loan to purchase a single-family home. The balance on the loan is $150,000 when the borrower stops making payments. The lender forecloses on the property and sells the home in a foreclosure sale for $100,000. The deficiency is $50,000. If state law allows, the lender may sue the borrower to recover the deficiency. If the court awards the lender a deficiency judgment, the lender may then start collection proceedings against the borrower to recover the $50,000 deficiency.
Read on to find out whether lenders are allowed to sue homeowners for deficiencies after a foreclosure, a short sale, or a deed in lieu of foreclosure in Missouri.
Deficiency Judgment After Foreclosure
There is no statute in Missouri prohibiting deficiency judgments after foreclosure. Therefore, if there is a deficiency remaining after a foreclosure sale, the lender may sue the borrower to collect the deficiency.
Deficiency Judgment After a Short Sale
A short sale occurs when the mortgage lender agrees to a sale of the mortgaged property at a price less than the mortgage debt. Typically, a lender agrees to a short sale when the amount owed on the mortgage is more than the value of the home or the borrower has experienced some sort of hardship, such as unemployment, divorce, or family illness. The difference between the mortgage debt and the short sale price is the deficiency.
Nothing in Missouri’s statutes prohibit a lender from attempting to recover the deficiency after a short sale. If you’re a homeowner considering a short sale of your home, you should obtain from your lender a written release from your obligation to repay the deficiency after the short sale.
Deficiency Judgment After a Deed in Lieu of Foreclosure
A deed in lieu of foreclosure is a negotiated settlement between the lender and the borrower in which the borrower conveys title to the mortgaged property to the lender. In exchange for ownership of the property, the lender typically agrees to release the borrower from liability under the mortgage. This procedure is used as a substitute for foreclosure.
As with a deficiency remaining after a short sale, a borrower may also be liable for a deficiency after a deed in lieu of foreclosure. Missouri’s foreclosure statutes do not prohibit a lender from pursuing a deficiency judgment after a deed in lieu of foreclosure. Although it is unlikely that lenders will go through the time and expense of suing defaulting borrowers for the deficiency, a borrower should nevertheless get from the lender a written release from the obligation to repay the deficiency.