User:Chasegunther98/Deficiency judgment

Introduction
A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note, or loan, in full. The availability of a deficiency judgment depends on whether the lender has a recourse or nonrecourse loan, which is largely a matter of state law. In some jurisdictions, the original loan(s) obtained to purchase property is/are non-recourse, but subsequent refinancing of a first mortgage and/or acquisition of a 2nd (3rd, etc.) are recourse loans.

It is important to note that there is a difference between a deficiency and a deficiency judgment. A "deficiency" is the difference between the amount owed on a loan and the total amount received/collected at the closing of a loan. A "deficiency judgment" is a court judgment that is a public record of the amount owed and by whom. In many states, items included in calculating the amount of a deficiency judgment include: the loan principal, accrued interest and attorney fees, less the amount the lender bid at the foreclosure sale. The money received from a foreclosure sale often is partially offset by the legal costs and fees of conducting a foreclosure sale through the court.

In 2014 Geoff Walsh, a staff attorney with the U.S. National Consumer Law Center, said on NPR that the United States is "seeing an uptick" in the pursuit of deficiency claims, because technological developments have enabled large debt-buying institutions and mortgage insurers to more easily pursue former borrowers, who often don't know their legal rights. The majority of deficiency judgments arise out of a mortgage on real property, but a deficiency judgment can be obtained on almost any defaulted loan.

Allowance of Deficiency Judgments
The allowance of deficiency judgments varies by state. Some jurisdictions, like California, Montana, and Washington, for the most part, do not allow a creditor to obtain a deficiency judgment against a debtor. States allowing for creditors after foreclosure sale to obtain deficiency judgments typically have anti-deficiency laws enacted which limit the fields of endeavor in which a deficiency judgment can be granted.

While many states allow for deficiency judgments to be obtained against real property, there are some jurisdictions that severely restrict the practice:

Other states more recently considered preventative of deficiency judgments on real property include Minnesota, North Dakota, Oklahoma, Oregon, and Nevada.
 * Alaska: No deficiency judgments unless conducted through a judicial foreclosure (where the court must conduct the foreclosure sale rather than the creditor )
 * Arizona: No deficiency judgments are allowed for mortgages of 1-2 family dwellings
 * California: No deficiency judgments in foreclosure sales for dwellings of up to 4 families
 * Hawaii: No deficiency judgments for mortgages established after 1999
 * Montana: No deficiency judgments unless conducted through a judicial foreclosure (where the court must conduct the foreclosure sale rather than the creditor )
 * Washington: No deficiency judgments for power of sale foreclosures (foreclosures conducted by the creditor/lender) of residential property

Obtaining a Deficiency Judgment
Often a bank, acting as a lender/creditor, sells real property through a judicial foreclosure sale. If a real property sells at a foreclosure sale for less than the remaining loan on the property, the creditor can be entitled to a personal judgment against the debtor, also referred to as a deficiency judgment.

The ability to receive a deficiency judgment and the monetary limit of that judgment varies by state. In many of the states that allow creditors to receive deficiency judgments, the creditor has to show that the previous judicial foreclosure sale gave both adequate notice of the sale to the defaulting debtor and subsequently sold the property for a reasonable price. If a creditor complies with proper foreclosure sale procedures, they will able to make a motion to the court for a deficiency judgment. This deficiency judgment will be a personal judgment against the debtor often for the difference between the remaining principal on the loan and the proceeds from the foreclosure sale.

In order to get a deficiency judgment from the court, the creditor that conducted the foreclosure sale has the burden of proving they sold the property for an adequate price. When the foreclosed property is sold for far less than the market value of the property, the value of the deficiency judgment can be limited to the difference between the outstanding debt and the amount the property realistically should have sold for. This offset of the deficiency judgment is typically reserved for instances where the foreclosure sale involves acts of fraud or the sale price is so low that it "shocks the conscious". Obtaining a deficiency judgment additionally requires [https://www.nycourts.gov/courthelp/goingtocourt/servicePersonal.shtml#:~:text=The%20papers%20are%20handed%20to,to%20do%20it%20for%20them. personal service] of the deficiency judgment action upon the debtor and for the debtor to have been put on notice of the occurrence of the foreclosure sale.

In many states, the deficiency creditor is limited in the amount of time they have to seek a deficiency judgment after a foreclosure sale. For example, New Jersey limits the deficiency creditor to three months, from the date of the foreclosure sale, in order to bring a motion for a deficiency judgment. Similarly, New York limits an action for a deficiency judgment to ninety days from the consummation of the foreclosure sale.

Collecting on a Deficiency Judgment
A creditor with a deficiency judgment has several methods of collecting payments from a debtor. A creditor can file a lien with the court for the sheriff of a municipality to levy on the debtor's personal property. In extreme cases, a creditor with a deficiency judgment can seek a court order for a "writ of garnishment", which requires a debtor's employers to reduce the debtor's paychecks by a fixed amount in order to begin satisfying the debt. A creditor cannot satisfy the debt by seizing a debtor's welfare, social security, veterans, or unemployment benefits.

In general, once a deficiency judgment is obtained, the creditor can request from the court a lien against the property of the debtor. Once the deficiency judgment creditor has a lien on specific property of the debtor, the creditor can instruct the sheriff to levy on (or seize) the real property of the debtor. Levying on personal property, such as tangible goods, real property, and bank accounts, requires a creditor to obtain writ of execution from the court (the writ of execution instructs the sheriff how to seize the property). Once the property is seized by the sheriff, the property can be sold in order to satisfy the deficiency. If the sheriff executes on the debtor's bank accounts, the sheriff can simply give the creditor the money obtained from the bank account.

Other collection methods include:

 * Wage Garnishment: the court grants orders the debtor's employer to give the creditor a fraction of the debtor's paycheck in satisfaction of the debt
 * Restraining Notice: the court orders the debtor's bank to freeze the debtor's accounts until the debtor repays the creditor
 * Lien on Real Property: the court grants a lien on the debtor's home, preventing the debtor from selling the property without repaying the creditor, assuming the debtor is still in possession of some real property)

Vacating a Deficiency Judgment
As previously mentioned, it is possible to get a deficiency judgment vacated under certain circumstances. Under the Uniform Commercial Code, a deficiency judgment can be vacated under two circumstances. One being, proper notice of the foreclosure sale was not given to the debtor; the second being, where the creditor fails to sell the collateral (property of the debtor) for a "commercially reasonable" price. Additionally, a creditor can vacate a deficiency judgment against them through a declaration of bankruptcy. A declaration of bankruptcy stays (freezes) any collection actions by a creditor, making a deficiency judgment against the debtor ineffective while the bankruptcy proceeding is in place.