Losing one’s home to foreclosure can be extremely stressful. For some distressed homeowners, however, the sale of their home in a foreclosure auction does not necessarily mean their concerns are over. In some states, homeowners may be liable for deficiency judgments after foreclosure. If you’re facing foreclosure, determining whether your state allows deficiency judgments will help you decide what the best options are for you.
If a home is sold at a foreclosure sale for less than the amount owed on the mortgage, the difference is called the deficiency. In some states, the lender may file a lawsuit to collect the deficiency. A deficiency judgment is a money judgment as a result of such a lawsuit, holding a borrower personally liable to repay the deficiency.
Most residential foreclosures in Virginia are nonjudicial and the state does not have any laws restricting a lender’s right to sue for a deficiency. Thus, deficiency judgments are allowed after a foreclosure auction if the lender files a separate lawsuit. (Deficiency judgments are also permitted in judicial foreclosures.) However, just because a lender has the right to sue to recover a deficiency does not necessarily mean that the lender will sue. Lawsuits can be expensive endeavors, and if the lender believes that the borrower has few or no resources to pay a deficiency, the lender may not bother to sue.
In the event of a short sale or deed in lieu of foreclosure, the specific agreement negotiated by the borrower and the lender will determine whether the borrower remains liable for any balance owed on the mortgage. To be safe, borrowers should get from their lenders a written release of liability for any deficiency.