2023: How To Avoid a Deficiency Judgment After Foreclosure

Definition of a Deficiency Judgment

A deficiency judgment is a ruling that occurs when the sale of a foreclosed property does not fully cover the outstanding mortgage balance. In other words, if a borrower defaults on their mortgage payments and their property is sold in foreclosure for less than the remaining balance on their mortgage loan, the lender may file a deficiency judgment against the borrower. This means that the borrower may be held responsible for the difference between the sale price of the property and the amount owed on the mortgage. For example, if somebody owes $100,000 on their house and it gets sold for $80,000 at the foreclosure auction they could be held liable for the additional money that did not pay the loan off.

A deficiency judgment can have serious financial consequences for the borrower, potentially resulting in wage garnishment, seized bank accounts, or other collection actions. Homeowners at risk of foreclosure need to understand how to avoid a deficiency judgment.

How Can a Deficiency Judgment Occur

A deficiency judgment can occur during a foreclosure when the value of a home drops below the outstanding loan amount or if the borrower, borrows to much money on their house. This typically happens during a real estate downturn, where market conditions cause home values to decrease. When a homeowner has an underwater mortgage, meaning the loan amount is higher than the current market value of the home, they may be at risk of facing a judgment.

After a foreclosure judgment and sale, the lender may seek a deficiency judgment to recover the difference between the sale price of the property and the remaining mortgage balance. In some cases, the foreclosure sale may not generate enough funds to fully satisfy the outstanding loan.

Home that is getting foreclosed on and is facing a Deficiency judgment

It’s important to note that each state has specific time frames for lenders to file for a deficiency judgment. This means that they must take legal action within a certain period after the foreclosure sale to pursue the deficiency balance. Homeowners must be aware of these time frames and seek professional guidance, such as foreclosure defense attorneys if they are facing the possibility of a deficiency judgment in their foreclosure case.

The only states that have anti-deficiency laws so people can not file a deficiency judgment:

  • Alaska
  • California
  • Minnesota
  • Montana
  • Oregon
  • Washington

Deficiency judgments are often predatory towards homeowners and is something that should really be outlawed from Banks being able to do because if the bank gives you a bad loan and Loans you more money than what they should have you should not have to have that fall back on you

– Jacob Michal, CEO Of Louisville Cash Real Estate. https://www.louisvillecashrealestate.com/

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Consequences of a Deficiency Judgment

Judgments can have significant consequences for borrowers who owe more on their mortgage than their home is worth or if they obtained a second mortgage. When a foreclosure sale does not generate enough funds to fully satisfy the outstanding loan, the lender may seek a mortgage deficiency judgment and or personal judgment to recover the difference between the sale price of the property and the remaining mortgage balance to satisfy the lender.

One of the major consequences of a deficiency judgment is that it leaves the borrower with a significant debt to repay even after losing their primary residence. This can result in financial difficulties and severely impact the borrower’s credit score and their ability to recover from the foreclosure.

To collect the amount of the money owed, the lender may take various actions. One option is to garnish the borrower’s salary, which involves withholding a portion of their wages to repay the debt. Another action is levying the borrower’s bank accounts, where funds are seized from their accounts to satisfy the deficiency balance.

Steps to Avoid a Deficiency Judgment

When facing foreclosure, borrowers must be aware of the potential consequences of a deficiency judgment. This is a situation where the sale of a foreclosed property does not cover the outstanding mortgage balance, leaving the borrower liable for the difference. You should take the following steps to avoid a deficiency judgement:

1. Explore alternatives to foreclosure: Before the foreclosure process begins, borrowers need to consider alternatives such as loan modifications, repayment plans, or a short sale agreement with a real estate investor, the short sale process takes around 60 days to 1+ year depending on the bank and the state’s laws. These options can help borrowers avoid foreclosure altogether and potential judgments, Short sales also only last for two years on your credit report. You can also sell your house fast to a local home buyer like us before the foreclosure so that you do not have to be foreclosed on and could potentially even profit from selling it! If you want a No Obligation Cash Offer fill out our form below!

2. Engage with the mortgage lender: Communication with the mortgage lender is key. By openly discussing financial difficulties and exploring potential solutions, borrowers may be able to negotiate a foreclosure alternative that does not lead to a deficiency judgment. Lenders do not want a foreclosure to happen either. If the lender will not negotiate with you on

3. Seek legal guidance: Consulting with foreclosure attorneys or experienced foreclosure lawyers can provide borrowers with guidance on navigating the foreclosure process. These professionals can help borrowers understand their rights and options to avoid a deficiency judgment.

4. Consider filing for bankruptcy: In some cases, filing for bankruptcy may be a solution to discharge the judgment. However, it is crucial to consult with a bankruptcy attorney to assess the viability of this option and determine the best course of action based on individual circumstances.

5. Submit A Short Sale To Your Lender: If you owe more than what your property is worth and can not sell it a good option is to submit a short sale to your mortgage lender. This process usually involves a real estate agent to submit the short sale and then a home buyer who places a offer in on your property for an amount that works for them.

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Understand The Fair Market Value Of Your Home

Understanding the fair market of the property value is crucial for borrowers looking to avoid a deficiency judgment during the foreclosure lawsuit process. Fair market value refers to the estimated price at which a property would sell for in the current condition of your home.

In the context of foreclosure, the fair market of the home value becomes significant when the property is sold to cover the outstanding mortgage balance. If the sale price falls short of the fair market value, a deficiency judgement is possible, leaving the borrower liable for the difference.

it is also important to know the market value of your house so that whenever you are in the home buying process of purchasing a home you can make sure to put in an offer 10-20% below the appraisal value so you can buy your house with equity in case you do need to end up selling.

Know the Foreclosure Process in Your State

Understanding the foreclosure process in your state is crucial when it comes to avoiding a deficiency judgment. Foreclosure laws can vary significantly from state to state, so it is essential to research and familiarize yourself with the specific process in your area.

One of the first steps to knowing the foreclosure process in your state is to understand the timeline involved. How long does it typically take for a foreclosure to be completed in your area? Knowing this will help you plan and take action to avoid any possible judgments. Some states are judicial foreclosure States and some states are non-judicial foreclosure States, Judicial foreclosure states have to go through a lawsuit process while non-judicial states do not have to.

Additionally, it is crucial to be aware of the notice requirements in your state. Does the lender have to provide you with formal notice before initiating foreclosure proceedings? Understanding these requirements will allow you to respond and defend your rights. Most states require mailed notices.

Stay Current on Mortgage Payments

Staying current on mortgage payments is crucial in avoiding a deficiency judgment. When a senior lien holder forecloses, such as the primary mortgage lender, any junior liens, including second mortgages and home equity lines of credit (HELOCs), In these cases, the junior lien holders have the right to sue the borrower personally for the unpaid balance.

To prevent this, it is essential to make timely and regular mortgage payments. By staying current on mortgage payments, It shows your commitment to honoring their financial obligations and avoid defaulting on the loan. if you do fall behind on your mortgage payments make sure to communicate with your bank Lenders may provide borrowers with various options to help them stay current on their mortgage payments.

Foreclosure auction on a house.

These options could include mortgage forbearance, temporary reduction or suspension of payments, or loan modification, wherein the terms of the loan are modified to make payments more manageable. It is important for borrowers facing financial difficulties to proactively reach out to their lenders and explore these options.

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Review the Terms of Your Mortgage Loan Agreement

When facing the possibility of foreclosure, it is crucial to carefully review the terms of your mortgage loan agreement. By understanding the details of your agreement.

The terms of repayment outlined in your mortgage loan agreement are important to understand. This includes information about interest rates, payment frequency, and any potential penalties for late payments. Understanding these terms allows you to make informed decisions. You also want to read the documents that are outside of the mortgage note to see if you signed any personal guarantees or other paperwork that could hold you liable.

It is equally important to pay attention to any clauses in your agreement that pertain to foreclosure actions. These clauses outline the process that your lender can take if you default on your mortgage payments. By knowing this process, you can be prepared and explore alternatives to foreclosure before it becomes an option.

Negotiate an Agreement with Your Mortgage Lender Before the Foreclosure

Negotiating an agreement with your mortgage lender before the foreclosure sale date is crucial to avoid getting a judgement. By discussing options and reaching a mutual understanding, you can potentially find alternatives to foreclosure and protect yourself from further financial consequences.

One important aspect to consider during negotiations is the condition of the property. Lenders may be more inclined to reach an agreement if you can demonstrate that you are leaving the property in good condition. This may involve maintaining the property or even making necessary repairs.

Additionally, offering a fixed payment amount can also be advantageous. By proposing a specific amount of money that you are able to pay each month, you show your commitment to resolving the situation and prevent going into foreclosure instead of having to pay the full amount upfront and sometimes the lenders will modify your loan.

Foreclosures on homes with homeowners facing a Deficiency judgement.

Initiating these conversations with your mortgage lender allows for a more personal and tailored approach to resolving your financial difficulties. By proactively negotiating an agreement, you not only increase the chances of avoiding a deficiency judgment but also create a better relationship with your lender.

Consider Hiring a Foreclosure Defense Attorney

Hiring a foreclosure defense attorney is crucial when trying to avoid a deficiency judgment in foreclosure. These attorneys specialize in protecting homeowners’ rights and can be instrumental in navigating the complex legal landscape surrounding foreclosure proceedings.

Foreclosure laws vary by state and can be intricate, with specific requirements and timelines that must be followed. An experienced foreclosure defense attorney will have a deep understanding of the laws in your state and can provide invaluable guidance tailored to your specific situation.

Research the Sale Price of Similar Properties in Your Area

When facing foreclosure, a crucial step to avoid a deficiency judgment is researching the sale price of similar properties in your area. This will help you gain an understanding of the current market value and ensure that the foreclosure sale price is fair.

To conduct this research, utilize online real estate platforms, local property listings, and recent sales data. These resources will provide you with information on the sale prices of comparable properties. Pay attention to factors such as location, size, features, and condition of these properties to make accurate comparisons. You can also ask a local real estate agent to run comparable for you on your property.

Deteriorated house that has been sitting since a foreclosure

By researching the sale price of similar properties, you can determine whether the foreclosure sale price is reasonable. If you find that it exceeds the home’s value, you can use this information as leverage in negotiations with your mortgage lender. An experienced foreclosure defense attorney or foreclosure lawyer can assist you in this process and provide guidance tailored to your specific situation. If you see that you owe more than what the other properties are selling for you can start the short sale process it is important to work with an experienced short sale real estate agent and a credible investment company so they can submit the short sale to your lender for you if you use a real estate agent you will have a higher chance of getting a short sale accepted.

If you are considering doing a short sale on your property or just want to hear what that looks like please fill out the form below and we will reach back out to you within 2 hours.

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File for Bankruptcy Protection if Necessary

If you are facing financial difficulties and are unable to pay your mortgage debt, filing for bankruptcy may be a good idea and maybe your best option depending on your situation to consider to avoid a judgment in foreclosure. There are two main types of bankruptcy protection for individuals: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the sale of your non-exempt assets to repay your creditors. This process can discharge your unsecured debts, including credit card debt and personal loans, providing you with a fresh start. However, it does not automatically prevent a deficiency judgment in foreclosure, this will vary depending on the area.

On the other hand, Chapter 13 bankruptcy, also known as reorganization bankruptcy, allows you to create a repayment plan over three to five years to catch up on your mortgage arrears and other remaining debts. This can help you keep your home and avoid foreclosure altogether. By making regular monthly payments, you can satisfy your mortgage debt and potentially avoid a deficiency judgment.

Working with a bankruptcy attorney is crucial when filing for bankruptcy protection. They can guide you through the process, help you understand the advantages and consequences of each type of bankruptcy, and negotiate with your creditors on your behalf. They will also ensure that all necessary paperwork is properly filed, increasing your chances of a successful bankruptcy case


Understanding the foreclosure process in your state is crucial in successfully avoiding a deficiency judgment. Nonjudicial foreclosures can be carried out without court involvement, while judicial foreclosures require the lender to file a lawsuit and go through the court system which makes the process a little longer.

Avoiding a judgment is important as it can protect the borrower’s financial future and credit score. A deficiency judgment occurs when the foreclosure sale price is lower than the remaining mortgage balance, resulting in the borrower owing the difference. This can lead to financial difficulties and damage the borrower’s credit score and financial future.

Seeking legal assistance is highly recommended when facing foreclosure and the potential for a deficiency judgment. Foreclosure defense attorneys can guide borrowers through the process, ensuring their rights are protected. They can potentially negotiate alternatives to foreclosure, such as loan modifications or consent foreclosures, that can help the borrower avoid a deficiency judgment and always if possible sell your property before the Foreclosure so you can at least get some money from it and it will not mess up your record and if you are not able to sell it to somebody because you owe more than what you can sell it for then we recommend to do a short sale.

To protect your financial future and credit score, it is essential to be proactive in understanding the foreclosure process and seeking legal assistance if needed. By doing so, you can increase your chances of avoiding judgment and finding a solution that works for your specific situation.


  1. What is a Deficiency Judgment?
    • A deficiency judgment is a court order against a borrower when a foreclosed property is sold for less than the outstanding mortgage balance. This leaves the borrower liable for the remaining debt.
  2. How Can a Deficiency Judgment Occur?
    • It occurs when a property is foreclosed and sold for an amount less than what is owed on the mortgage. This often happens during market downturns when property values fall below the loan amount.
  3. What Are the Consequences of a Deficiency Judgment?
    • The borrower can face significant financial repercussions, including wage garnishment, bank account seizure, and a severely impacted credit score. It adds a substantial debt burden even after losing the property.
  4. How Can I Avoid a Deficiency Judgment?
    • Options include negotiating a loan modification or short sale with the lender, staying current on mortgage payments, seeking legal advice, and in some cases, filing for bankruptcy. Proactive communication with the lender and exploring all available alternatives are key.
  5. What States Have Anti-Deficiency Laws?
    • States with anti-deficiency statutes include Alaska, California, Minnesota, Montana, Oregon, and Washington. These laws prevent lenders from filing deficiency judgments under certain conditions, offering some protection to borrowers.
  6. What’s the Difference Between Nonjudicial and Judicial Foreclosures?
    • Nonjudicial foreclosures do not require court involvement and are governed by state statutes and notice requirements. Judicial foreclosures, on the other hand, involve a legal process where the lender must file a lawsuit and obtain a court order to foreclose. The choice between these processes depends on the state’s laws and the specifics of the mortgage agreement.
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