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 the borrower 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 New Hampshire.
Both judicial and nonjudicial foreclosures are allowed in New Hampshire, although most foreclosures are nonjudicial. N.H. Rev. Stat. Ann. § 479:25. There are no significant restrictions on deficiency judgments in New Hampshire. Lenders may obtain a deficiency judgment with either a judicial or nonjudicial foreclosure. To obtain a deficiency judgment following a nonjudicial foreclosure, the lender will have to file a lawsuit following the foreclosure sale. The lender must demonstrate that the foreclosure sale price was fair and reasonable. What constitutes a fair price depends on the circumstances of each case, and is not necessarily based on fair market value.
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 a property is sold for less than the outstanding mortgage debt and is usually completed by the borrower to avoid foreclosure. A short sale, by its very nature, falls short of paying off the lender in full; the amount of the remaining debt 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 mortgage debt is considered the deficiency.
There is nothing in New Hampshire’s statutes prohibiting a lender from suing a borrower for the deficiency after either 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 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 against the borrower.
The statutes that govern foreclosures in New Hampshire can be found in the New Hampshire Revised Statutes, Title 48, Chapter 479. They can be accessed on the website of the New Hampshire General Court.