Mortgage Deficiency Judgments

When a home sells at a foreclosure auction, the foreclosure sale price is sometimes less than what the borrower owes on the loan. A “deficiency” is the difference between what you owe on the loan and the amount that’s received from the sale of your property. In some states, the foreclosing bank can ask a court for a personal judgment—called a “deficiency judgment”—against you for the amount of the deficiency. Other states have anti-deficiency laws. These laws protect borrowers from having to pay the bank for its loss following a foreclosure sale. Also, if your lender chooses to write the deficiency off instead of seeking a judgment, you might owe federal taxes on the forgiven amount. Below you can find details about deficiency judgment laws in your state and under what circumstances you might be liable for paying taxes on canceled debt.