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Deficiency Judgment FAQ’s

Q: What is a deficiency judgment in a foreclosure proceeding?
A: When a financial institution brings a foreclosure action on a mortgage the total amount owed by the homeowner to the lender may exceed the sales price of the home at the foreclosure sale. The difference between the price the home is sold for and the amount of the total debt owed by the homeowner to the financial institution is called a deficiency judgment. See this example: Let’s say the homeowner owes $400,000 and the home sells for $200,000. The deficiency (the difference between the amount the home was sold for and the amount of the mortgage) is $200,000. The financial institution can sue the homeowner for $200,000 and obtain a judgment against him for this deficiency amount.

Q: Are there deficiencies after a short sale?
A: In a short sale situation, the home is sold for less than the total amount of the mortgage due the bank. In almost all of these situations, the bank agrees to the terms of the short sale and waives the right to obtain a deficiency judgment. In the event a short sale agreement does not contain a waiver of the bank’s ability to proceed against the homeowner for a deficiency judgment, the bank can file a lawsuit and obtain a deficiency judgment. However, this is very rarely done in the State of New York.

Q: Can a bank obtain a deficiency judgment after receiving a deed in lieu of foreclosure?
A: In a deed in lieu of foreclosure situation, the financial institution agrees to accept the deed to the property instead of bringing a foreclosure lawsuit against the homeowner. Although theoretically a bank can obtain a deficiency judgment in this transaction, the usual deed in lieu of foreclosure transaction is deemed to fully satisfy the entire mortgage debt. It is important in deed in lieu of foreclosure transactions that it is spelled out in a written agreement that the bank expressly waives the right to proceed with a deficiency judgment and accepts the payment received, at the sale of the property, as full satisfaction of the mortgage debt.

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