One of the big concerns borrowers have after a foreclosure is whether or not the lender is entitled to a deficiency judgment. If the property sells for less than the amount the borrower owes to the lender at the foreclosure sale, the difference between the sales price and the total debt is known as the deficiency. For example, if a homeowner owes $250,000 to the lender and the property sells at the foreclosure sale for only $200,000, the deficiency is $50,000.
In some states, including Mississippi, the lender is allowed to sue the homeowner for this difference and obtain a deficiency judgment, which is a personal court judgment against the borrower. The deficiency judgment allows the lender to collect the remaining debt by placing a lien on other property owned by the borrower, levying the borrower’s bank accounts, or garnishing the borrower’s wages. Learn more about how lenders collect deficiencies.
Both judicial and nonjudicial foreclosures are allowed in Mississippi, although most foreclosures are nonjudicial. Miss. Code Ann. § 89-1-63. The lender may obtain a deficiency judgment by filing a lawsuit against the borrower within one year from the foreclosure sale date. Miss. Code Ann. § § 11-5-111, 15-1-23. In order to be granted a deficiency judgment, the winning bid at the foreclosure sale must be reasonable based on the fair market value of the property, particularly if the lender is the high bidder.
When a home is sold in a short sale or when a deed in lieu of foreclosure is completed, the transaction likely will not satisfy the total amount that is owed. A short sale occurs when a property is sold for less than is owed on the total mortgage debt and is usually completed as a way to avoid foreclosure. A short sale, by its very nature, falls short of paying off the lender in full; the balance remaining as a result of the short sale is the deficiency. In the case of a deed in lieu of foreclosure, the difference between the fair market value of the property and the total debt is also considered a deficiency. There is nothing in Mississippi’s statutes prohibiting a lender from suing a borrower for the deficiency after a short sale or deed in lieu of foreclosure.
To avoid a deficiency judgment with a short sale or deed in lieu of foreclosure, the borrower must negotiate with the lender to reach a consensus that the transaction fully pays off the debt. Without such language in the written short sale or deed in lieu of foreclosure agreement, there remains a risk that the lender may later attempt to obtain a deficiency judgment against the borrower.
The statutes that govern foreclosures can be found in the Mississippi Code, Title 89, Chapter 1, Sections 89-1-55 to 89-1-59. For information on deficiency judgments, go to Title 11, Chapter 5, Section 111 and Title 15, Chapter 1, Section 23. The Mississippi statutes are available online at http://www.lexisnexis.com/hottopics/mscode/.