One of the big worries borrowers have after a foreclosure is whether or not their lender is entitled to a deficiency judgment. If the property sells at the foreclosure auction for a price that is less than the amount the borrower owes to the lender, 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, 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 account, or garnishing the borrower’s wages. Not all states allow a lender to obtain a deficiency judgment. Read on to find out whether lenders may sue borrowers for the deficiency in Nebraska.
While both judicial and nonjudicial foreclosure processes are available, the majority of foreclosures in Nebraska are nonjudicial. Lenders may obtain a deficiency judgment after either type of foreclosure. Neb. Rev. Stat. § 76-1005. The lender must commence a lawsuit within three months after the foreclosure sale date to obtain a deficiency judgment. The amount of the deficiency judgment is limited to the lesser of:
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 the borrower owes to the lender. A short sale occurs when the borrower sells the property for less than 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 of the remaining debt is the deficiency. In the case of a deed in lieu of foreclosure, the difference between the property’s fair market value and the total outstanding mortgage debt is considered the deficiency. There is nothing in Nebraska’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, the borrower must negotiate with the lender to include in the short sale or deed in lieu of foreclosure agreement language stating that the transaction fully pays off the debt. Without such language, there remains a risk that the lender may later attempt to obtain a deficiency judgment.
The statutes that govern foreclosures in Nebraska can be found in the Nebraska Revised Statutes, Sections 76-1005 to 76-1018 (for nonjudicial foreclosure) and Sections 25-2137 to 25-2155 (for judicial foreclosure). The statutes can be accessed on the website of the Nebraska Legislature.