In the context of a foreclosure, a "deficiency" is the difference between what a borrower owes on a mortgage loan and the price at which the house is sold at a foreclosure sale. Many states allow the bank to get a personal judgment, called a "deficiency judgment," for this amount against the borrower.
However, some states have "anti-deficiency laws." These laws prohibit foreclosing banks from suing borrowers for deficiency judgments.
In this article, you'll find general information about deficiency judgments, anti-deficiency laws, and a chart summarizing these laws in each state.
A "deficiency judgment" is a money judgment against a borrower for the difference between the total amount of the mortgage debt and the foreclosure sale price.
Example. Suppose you owe the bank $450,000 on your mortgage loan. Your home sells at a foreclosure sale for $400,000. The deficiency is $50,000. Then, if state law allows it, the bank may get a personal judgment against you for $50,000.
Once the bank has a deficiency judgment, it may try to collect this amount from you using standard collection methods, like garnishing your wages, levying your bank account, or placing a lien on other property you own.
Most states allow banks to go after borrowers for deficiency judgments. In judicial foreclosures, the bank can usually request the judgment as part of the foreclosure lawsuit. Some states, however, require the bank to file a separate action to recover the deficiency.
With a nonjudicial foreclosure, the bank must sue the borrower following the foreclosure to get a deficiency judgment.
Many states that allow banks to seek deficiency judgments limit the amount that banks can recover to the difference between the outstanding loan amount and the home's fair market value.
Example. Again, say the amount you owe on your mortgage loan is $450,000. The property sells in a foreclosure sale for $400,000. But the fair market value of the house is $425,000. In a deficiency lawsuit, assuming your state has this kind of law, the bank could recover only $25,000 ($450,000 minus $425,000), even though the deficiency was actually $50,000 ($450,000 minus $400,000).
Other states, however, have anti-deficiency laws. These laws prohibit lenders from suing for deficiencies under certain circumstances, like after a nonjudicial foreclosure.
Loans that fit into this category are sometimes called "nonrecourse" loans.
Anti-deficiency laws typically provide no protection for second or third mortgages, home equity lines of credit, and mortgages secured by vacation or investment properties.
Even if your bank has the right to sue you for a deficiency, it might not do so. Lawsuits can be costly, and many borrowers losing their homes to foreclosure have little income and few assets for the bank to go after.
But you could face such a lawsuit if you have a job or assets. If you live in a state that allows deficiency judgments, and you've been thinking about filing for bankruptcy for other reasons, you might be able to wipe out your liability to repay any deficiency. For more information about whether bankruptcy might be right for your situation, talk to a bankruptcy lawyer.
State |
Most Common Type of Foreclosure |
Are deficiency judgments allowed? |
Alabama |
Nonjudicial |
Yes. |
Alaska |
Nonjudicial |
Not after a nonjudicial foreclosure. |
Arizona |
Nonjudicial |
Not allowed after a nonjudicial foreclosure if the property is 2½ acres or less and is a single- or two-family residence. |
Arkansas |
Nonjudicial |
Yes. |
California |
Nonjudicial |
Not after a nonjudicial foreclosure. |
Colorado |
Nonjudicial |
Yes. |
Connecticut |
Judicial |
Yes. |
Delaware |
Judicial |
Yes. |
District of Columbia |
Nonjudicial |
Yes. |
Florida |
Judicial |
Yes. |
Georgia |
Nonjudicial |
Yes, if a court confirms the foreclosure sale. |
Hawaii |
Judicial |
Yes. |
Idaho |
Nonjudicial |
Yes. |
Illinois |
Judicial |
Yes. |
Indiana |
Judicial |
Yes, but not if the borrower waives applicable foreclosure waiting period. (Borrower may agree to waiver in exchange for lender's agreeing not to seek a deficiency judgment.) |
Iowa |
Judicial |
Yes, generally, but not allowed under certain circumstances. |
Kansas |
Judicial |
Yes, if the court confirms the foreclosure sale. A court may refuse to confirm the sale if the foreclosure sale price is inadequate. |
Kentucky |
Judicial |
Yes, usually. |
Louisiana |
Judicial |
Yes, allowed in an ordinary proceeding or in a separate suit after an executory proceeding (or by converting an executory proceeding into an ordinary proceeding) if the property was properly appraised. |
Maine |
Judicial |
Yes. |
Maryland |
Nonjudicial |
Yes. |
Massachusetts |
Nonjudicial |
Yes. |
Michigan |
Nonjudicial |
Yes. |
Minnesota |
Nonjudicial |
Not allowed if a mortgage is foreclosed nonjudicially and has a redemption period of six months or five weeks (for abandoned properties). Allowed in other foreclosures. |
Mississippi |
Nonjudicial |
Yes. |
Missouri |
Nonjudicial |
Yes. |
Montana |
Nonjudicial |
Not allowed under the Small Tract Financing Act (most foreclosures happen under this Act). |
Nebraska |
Nonjudicial |
Yes. |
Nevada |
Nonjudicial |
Yes, but not if all of the following are true: the loan was made on or after October 1, 2009; the lender is a financial institution; the property is a single-family home owned by the borrower at the time of sale; the borrower has resided in the home continuously since getting the loan; the borrower used the proceeds of the loan to purchase the property; and the borrower has not refinanced the loan. |
New Hampshire |
Nonjudicial |
Yes. |
New Jersey |
Judicial |
Yes, by filing a separate lawsuit. |
New Mexico |
Judicial and Nonjudicial |
Allowed in judicial foreclosures, but not in nonjudicial foreclosure of a primary residence of a low-income household. |
New York |
Judicial |
Allowed if the debtor was personally served with the summons or appeared in the foreclosure action. |
North Carolina |
Nonjudicial |
Yes, but not for seller financed, purchase money mortgages (or deeds of trust) or for a loan that is nontraditional or a rate spread home loan, and the mortgage secures the borrower's principal residence. |
North Dakota |
Judicial |
Not permitted if the property is residential, owner-occupied as a homestead, one to four units, and 40 acres or less. |
Ohio |
Judicial |
Yes. |
Oklahoma |
Judicial |
Yes. |
Oregon |
Nonjudicial (usually) |
Not allowed after a nonjudicial foreclosure or a judicial foreclosure of a residential trust deed. |
Pennsylvania |
Judicial |
Yes. |
Rhode Island |
Nonjudicial |
Yes. |
South Carolina |
Judicial |
Yes. |
South Dakota |
Nonjudicial |
Yes. |
Tennessee |
Nonjudicial |
Yes. |
Texas |
Nonjudicial |
Yes. |
Utah |
Nonjudicial |
Yes. |
Vermont |
Judicial |
Yes. |
Virginia |
Nonjudicial |
Yes. |
Washington |
Nonjudicial |
Not after a nonjudicial foreclosure. |
West Virginia |
Nonjudicial |
Yes. |
Wisconsin |
Judicial |
Yes, unless the lender waives the right to a deficiency judgment. |
Wyoming |
Nonjudicial |
Yes. |
As you can see, deficiency judgment laws vary widely from state to state and can be complex. If you're facing a foreclosure, it's important to understand how the law works in your state. To find out more, consider talking to a knowledgeable foreclosure lawyer.