Deficiency Judgment After Foreclosure - YouTube

Hello and welcome to our Freebie Friday video. It's Sade here again.

Today we've been asked to talk about deficiency judgments in relation to mortgages.

As we know, there can be deficiency judgments related to auto vehicles or any other

kinds of secured loans but this time we're talking about mortgages because

we're usually talking about real estate in our videos.

When deficiency judgment comes up within the context of a mortgage, it's because the property was

foreclosed on - the loan was foreclosed on and the property was sold

at auction, and then the amount that was recovered at the auction was

less than the total amount owed at the time of the foreclosure sale.

So for example if the borrower owed $200,000 on the total outstanding balance plus

interest and costs and things like that, and at the auction, the lender was

only able to sell the property for $150,000, then

we have a $50,000 deficiency on that foreclosure. On top of that you could

also have post-foreclosure interest that will continue to accrue until the

time at which the lender actually moves to collect that payment. And the other

instance that the deficiency would happen is if we have a short sale

whether or not the short sale was done through the lender, or approved by the

lender, as long as there is no waiver of the deficiency inside the short sale

agreement, meaning that the lender agrees to waive any

deficiency, then the deficiency could come up later.

The third context in which the deficiency might come up is when the

lender tries to sell the property at a foreclosure sale but nobody showed up to

bid on it or for whatever reason the bids were too low and

unacceptable. So then the lender takes that property back on a credit bid for

an amount that the lender thinks is the fair market value. So in our example when

the borrower owes$200,000 let's say the property itself

is worth actually about $200,000 but nobody showed up, the lender may very well take

that property back on a credit bid for $150,000 or it could be $175,000

- whatever their appraisers have deemed to be the fair

market value. So that's how the deficiencies would normally come up.

What I would suggest is if you're going into a short sale situation the lender

has to approve the short sale for you to go forward, make sure that you are

getting a waiver inside the written agreement with the lender saying

that they would waive any deficiency that comes up once the short sale goes through.

The other thing you want to look out for is if it's already happened and

now the lender is trying to collect from you, the lender has two years in order to

be able to bring a lawsuit to try to collect that deficiency.

Most lenders would not move to try to collect deficiencies because they're

usually a small amount. The bigger amounts of course they do sue for that.

I've seen deficiencies that are way over $100,000, into

$200,000 and that is unusual but it happens and the lender

would then try to sue within the two year period. So you do have two years

from the time of the sale for the lender to sue you and they have to sue you to

get a judgment and then go from there.

Now, any time within that two year period

you can negotiate a settlement if you think that's appropriate. You should talk

to a lawyer for sure because especially if the fair market value doesn't seem to

have been right at the time of the sale, you want to fight that and argue that

the lender should have tried to get more for the property itself, so that the

deficiency will be smaller.

You could also argue against the costs and

interests and penalties and anything else - that is, the other charges on top

of the principal balance which would be attorneys fees, collection costs, and

things like that.

So get a lawyer to help you to do a debt validation and also to

see whether you could attack the fair market value that the lender has used to

calculate the deficiency amount. If you're in court you do have a right to

that kind of evaluation and you have a right to bring a professional of your own

to argue to the court and testify that

the fair market value was indeed not the right fair market value at the time and

it wasn't fair for the lender to sell it at a lower price or to take it back on a

credit bid at such a lower price.

And then at that point, that would reduce the

total deficiency and it would also give you leverage to be able to

negotiate a good settlement.

So I hope this video has been helpful for you.

If you have any questions feel free to contact us, or contact another lawyer

that does real estate and they'll be able to help you, or lawyers that do

collection defense can also help you with this kind of question.

All right, we'll talk to you next Friday. Happy Friday!