A “deficiency” is the difference between the amount a property is sold for at a foreclosure sale and the total mortgage debt. A “deficiency judgment” is a personal court judgment against a borrower for the amount of the deficiency.
One of the biggest concerns that borrowers have following a foreclosure is whether or not they will still owe money to the lender. The laws governing deficiency judgments vary from state to state. In Idaho, lenders are able to get deficiency judgments against borrowers.
In Idaho, deeds of trust are typically foreclosed nonjudicially, meaning that foreclosures are administered outside of the court system with no judicial oversight. While judicial foreclosures do occur in Idaho, the nonjudicial foreclosure process is more common.
In Idaho, a lender can file suit to obtain a deficiency judgment against a borrower following a nonjudicial foreclosure so long as it does so within three months after the foreclosure sale. The judgment amount cannot exceed the difference between the total debt and the fair market value of the property at the time of the foreclosure sale. Idaho Code Ann. § 45-1512.
For judicial foreclosures, a deficiency judgment is allowed after a determination that the proceeds from the foreclosure sale were insufficient to satisfy the total mortgage debt. Idaho Code Ann. § 6-101. The amount of the deficiency judgment is restricted to the difference between the mortgage debt and the reasonable value of the property as determined by the court. Idaho Code Ann. § 6-108.
With a short sale or a deed in lieu of foreclosure, there is almost always a deficiency. A short sale is a transaction where the property is sold for less than the total mortgage debt. This means that inevitably a deficiency will exist because the short sale, by its very nature, falls short of paying off the lender in full.
A deed in lieu of foreclosure is a transaction whereby the borrower agrees to grant, or deed, the property to the lender in exchange for the lender releasing the borrower from the mortgage obligation and thus avoiding a foreclosure. A deed in lieu of foreclosure may also result in a deficiency if the documents clearly state that the transaction is not in full satisfaction of the mortgage debt.
Idaho’s foreclosure laws don’t prohibit a lender from filing a lawsuit to recover a deficiency after a short sale or deed in lieu of foreclosure. To avoid a deficiency judgment, the borrower must negotiate with the lender to include language in the short sale or deed in lieu of foreclosure agreement that the borrower is released from all obligations under the mortgage. If this language is omitted from the agreement, the lender may be entitled to pursue a deficiency judgment.
If the lender refuses to include such language in the short sale or deed in lieu of foreclosure agreement and subsequently gets a deficiency judgment against the borrower, the borrower may be able to negotiate a reduced lump sum settlement or a payment plan to repay the deficiency over a period of time.
The statutes governing the nonjudicial foreclosure of trust deeds can be found in the Idaho Code, Title 45, Chapter 15, Sections 45-1505 to 45-1515. Information about judicial foreclosure of mortgages can be found in the Idaho Code, Title 6, Chapter 1, Sections 6-101 to 6-108. The Idaho Code can be viewed at www.legislature.idaho.gov/idstat/TOC/IDStatutesTOC.htm.