Short Sales and Deficiency Judgments. A State by State Guide.
What is a Deficiency Judgment?
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, first mortgages are non-recourse loans, but second and subsequent ones are recourse loans.
States that follow the title theory of mortgages typically allow non-judicial foreclosure procedures, which are fast, but do not allow deficiency judgments. States that follow the lien theory of mortgages require judiciary foreclosure procedures, but allow deficiency judgments against the debtor.
NOTE: this information changes often…consult a HREU Realtor or an attorney for your states current laws.
Alabama: Deficiency judgments are possible. No limits.
Alaska: Deficiency judgments are not allowed if the foreclosure is by power of sale (nonjudicial foreclosure).
Arizona: No deficiency judgment on a purchase money mortgage for one- or two-family properties on less than two and a half acres. A deficiency may be allowed if a court decides the owners committed waste.
Arkansas: Lawsuit for deficiency must be brought within one year from the date of the public sale. Deficiency limited to amount of indebtedness less fair market value; or deficiency limited to amount of indebtedness less sales price of home.
California: No deficiency allowed under judicial foreclosure unless there is no redemption period, and no deficiencies are allowed under nonjudicial foreclosure. Deficiencies that are allowed are limited by fair market value of property.
Colorado: Deficiency is allowed, but homeowners may claim the house sold for less than the fair market value as a defense against this.
Connecticut: Deficiencies are allowed if they are pursued within thirty days of the end of the redemption period.
Delaware: Deficiency judgment allowed if lawsuit filed on note. Not allowed in judicial foreclosure proceedings.
District of Columbia: Deficiency judgments are allowed. If one is sought under judicial foreclosure proceedings, it may be entered in the foreclosure lawsuit.
Florida: Homeowners entitled to jury trial in deficiency case. Bank must have in-hand service on borrowers to include deficiency action in the foreclosure lawsuit.
Georgia: Sale will not be confirmed unless court is satisfied the sales price was for the true market value of the house. No deficiency is allowed unless the bank makes a request to the court and the sale is confirmed.
Hawaii: Allowed in some types of foreclosure, not allowed in others.
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Idaho: Lawsuit for deficiency must be brought within 3 months of the public auction. Deficiency limited by fair market value as of the date of the sale.
Illinois: Deficiency judgments are allowed.
Indiana: If there is an agreement and an applicable waiting period is not waived, a deficiency judgment may be obtained.
Iowa: Deficiency not allowed if nonjudicial foreclosure process is used. Otherwise, deficiencies may be limited by statute.
Kansas: Deficiencies are allowed, but the court can refuse to allow confirmation of the sale or set an upset price.
Kentucky: Deficiency allowed if homeowners fail to answer foreclosure lawsuit or if they are served with the paperwork in-hand.
Louisiana: Deficiency only allowed in ordinary proceeding or executory proceeding if property has had an appraisal done under the state regulations.
Maine: Deficiencies are limited to an amount set on the date of the sale. If the bank that owns the mortgage is the high bidder at auction, any deficiency is also limited to the fair market value of the property.
Maryland: Report of sale and audit are required, but a deficiency can be obtained by filing a motion in court after the sale has been conducted.
Massachusetts: If a deficiency is to be pursued, the bank must include a notice of intent to seek deficiency with the required Notice of Sale. This Notice of Sale must be served on the borrowers at least 21 days prior to the actual auction.
Michigan: If the mortgagee bank purchases the property at auction, homeowners may use as a defense that the sale price was for less than the fair market value of the property.
Minnesota: Deficiency allowed, but limited by fair market value determined through a jury trial. If nonjudicial foreclosure is used and the six-month redemption period is available, no deficiency is allowed.
Mississippi: Judgment allowed if suit filed within one year of the auction. If the mortgagee bank was the winner at auction, deficiency may be denied based on unreasonably low sales price.
Missouri: Deficiency judgments allowed.
Montana: Allowed on a purchase money mortgage only under judicial foreclosure procedures.
Nebraska: Suit must be brought within 3 months of auction date. A deficiency is limited to the lessor of the difference between the amount owed to the bank and the fair market value at the time of the sale, or the difference between the amount owed and the sales price at auction.
Nevada: Allowed, but limited to the lessor of the following: the difference between the debt and the fair market value; or the difference between the debt and the sales price at auction, including interest from the date of sale.
New Hampshire: Allowed if action is brought in court after sale.
New Jersey: Judgment allowed only on the note after foreclosure, but no personal deficiency judgment allowed. Deficiency is limited by the fair market value of the property, and action must be brought into court within 3 months of sale.
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New Mexico: Allowed in judicial foreclosure, but property can not be sold for less than 2/3 of its appraised value. In nonjudicial foreclosure, creditor can sue for deficiency within 6 years of sale, unless property was occupied by a low-income household.
New York: Deficiencies limited by fair market value of property, and are only allowed if homeowner was served in-hand or appeared for lawsuit.
North Carolina: May be limited by fair market value in judicial cases. No deficiency allowed in nonjudicial foreclosure of purchase money mortgage.
North Dakota: Deficiencies limited by fair market value or appraised value, but allowed on land of more than 40 acres. Not allowed on residential property of four or fewer units on less 40 acres.
Ohio: Allowed but void after two years after sale date. The property can not be sold for less than 2/3 of its appraised market value.
Oklahoma: Limited by fair market value as of auction date. Objections may be filed to confirmation of sale.
Oregon: Deficiency judgments not allowed on judicial foreclosure proceedings involving residential mortgages, or in nonjudicial foreclosures.
Pennsylvania: Allowed if a separate action is filed in court after auction. If the mortgagee purchases the property at auction, any deficiency is limited by the fair market value.
Rhode Island: Deficiency judgments are allowed.
South Carolina: Homeowners may request court to issue an order of appraisal within 30 days of the auction. If this is done, deficiency is limited by the amount of the debt over the appraised value.
South Dakota: If mortgagee or holder of note purchases the property at auction, any deficiency is limited by the market value. In judicial foreclosure proceedings, a deficiency judgment may be barred. In cases of voluntary foreclosure, no deficiency or surplus is allowed.
Tennessee: Deficiency judgments are allowed.
Texas: Action to pursue a deficiency must be brought into court within two years of auction date. If the borrowers ask the court to determine the fair market value, the deficiency may be limited or offset if the market value is greater than the price obtained at auction.
Utah: Action to pursue deficiency judgment must be made within three months of the sale date. Any judgment is limited to difference between the debt owed, including fees and charges on the account, and the fair market value
Vermont: In judicial foreclosure proceedings, the lender must request deficiency in original complaint and will be limited to the fair market value if the mortgagee is the winner at auction. In strict foreclosure proceedings, a separate judgment must be obtained and is limited by the fair market value.
Virginia: Deficiency judgments are allowed.
Washington: Deficiency judgments are allowed in judicial foreclosure proceedings, but not if nonjudicial foreclosure is pursued.
West Virginia: Deficiency judgments are not allowed if the sales price is less than the amount of the indebtedness.
Wisconsin: Deficiency judgments are allowed if included in the foreclosure action, but court must be satisfied that the house sold for its fair market value. If a lender waives its right to deficiency, the redemption period is shortened.
Wyoming: Deficiency judgments are allowed if the homeowner is obligated by a separate written agreement.
For references to specific state statutes, please email us which state you are requesting information for, and we will be able to point you to the relevant sections of that state’s code. It should also be noted that states change their laws frequently, and foreclosure laws are no exception. Thus, it is still important for homeowners to do their own research to determine the current laws affecting their property. This list should only be used as a guide.