Anti-Deficiency Laws

Some states have a law that prohibits a deficiency judgment, which protects borrowers from having to pay the bank for its loss following a foreclosure sale.

An "anti-deficiency law" is a state statute that prohibits foreclosing banks from suing borrowers for deficiencies. (The "deficiency" is the difference between the amount the borrower owes on a mortgage and the price at which a house is sold in foreclosure). 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.

In this article, you’ll find general information about deficiency judgment laws, anti-deficiency laws, and get a brief summary about these laws in each state.

Does Your State Allow Deficiency Judgments?

Most states allow banks to go after borrowers for a deficiency judgment. 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 lawsuit to recover the deficiency. With a nonjudicial foreclosure, the bank must sue the borrower following the foreclosure to get a deficiency judgment.

Many of the 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. For example, say the amount you owe on the mortgage is $450,000, the property sold in a foreclosure sale for $400,000, and 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 in this category are sometimes called "nonrecourse" loans.

Will Your Bank Sue You for the Deficiency?

Even if your bank has the right to sue you for a deficiency, it might not actually do so. Lawsuits can be costly, and many borrowers losing their homes to foreclosure have little in the way of income or assets for the bank to go after.

But if you have a job or assets, you could face such a lawsuit. 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 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.

How Are Deficiency Judgments Collected?

A deficiency judgment gives the bank an arsenal of collection techniques that it can use to force you to pay the judgment amount. The bank can use the judgment to place liens on other property that you own, garnish your wages, or levy your bank accounts. (Learn more about how the bank can collect on a deficiency judgment.)

Look Out for Legal Changes

In the chart below, you’ll find a summary about whether a deficiency judgment is allowed in (or after) the most commonly-used foreclosure procedure for a particular state. Statutes change, though, so checking them is always a good idea. (If you need help finding the statutes, see Finding Your State’s Foreclosure Laws.) How courts and agencies interpret and apply the law can change too. These are just some of the reasons to consider consulting an attorney if you’re facing a foreclosure.

Also, the chart is intended for owners of single-family residences and doesn’t address special laws for agricultural land. The chart does not cover whether a deficiency judgment is allowed in another type or foreclosure (like in a judicial foreclosure if foreclosures in the state are typically nonjudicial), or any restrictions, such as whether the judgment is limited to the difference between the outstanding debt and the property's fair market value or whether state law provides a time limitation for getting a deficiency judgment.

State Deficiency Judgment Laws

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 court confirms foreclosure sale. Court may refuse to confirm sale if foreclosure sale price is inadequate.

Kentucky

Judicial

Yes, but not against a defendant who is constructively summoned, and who has not appeared in the action.

Louisiana

Judicial

Yes, allowed in an ordinary proceeding or in a separate suit after an executory proceeding (or by converting 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; borrower has resided in 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 primary residence of low-income household.

New York

Judicial

Allowed if debtor was personally served with summons or appeared in foreclosure action.

North Carolina

Nonjudicial

Yes, but not if the lender uses a nonjudicial foreclosure process and the mortgage was a purchase money mortgage or for certain loans that are nontraditional (for example, pick-a-payment or option ARM loans) or is a rate spread loan (where the annual percentage rate exceeds a certain threshold) 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 lender waives right to deficiency judgment.

Wyoming

Nonjudicial

Yes.

Talk to a Foreclosure Lawyer

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.

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