What is a deficiency judgement?

Deficiency judgments are generally defined as court orders which hold you personally responsible for debts that have not been paid. Often, they are connected with foreclosures when the selling price of a home becomes insufficient to cover the unpaid loan. It is important to note that deficiency and deficiency judgement differs. Deficiency is the amount difference between the loan and the amount collected after the closure of the loan. Let’s take a detailed look at deficiency judgements

Brief example of deficiency judgement
Let’s suppose a person has an unpaid loan of $300000. If you become unable to pay it within time, the lender has the right to repossess the property. But if, the property has a total value of $200000, the person is about $100000 short. Since the lender wants his money back, he can take legal action. This form of legal action to collect the remaining money is known as deficiency judgement. In case of this form of actions, the lender can not only sue the debtor for the unpaid money but also can add the costs which have been associated with foreclosure and also the pursuit of deficiency judgement.

What happens when the judgement is successful?
If the lender wins the case, the debtor personally becomes liable for the amount of judgement. The debtor needs to legally satisfy the judgement and the lender can file another case against him if he doesn’t. The debt can be collected in the form of garnishing salary, levying bank accounts, and also take personal valuable items which are in possession of the debtor. Generally a retirement fund is excluded from these types of cases, but in case of serious issues, it is important to consult with a local attorney regarding the matter.

When does the probability of deficiency judgement increase?
The chances of deficiency judgement increase if the lender has the right to take this type of action. For some loans, deficiency judgments are totally out of the question. It depends on the laws of individual states whether a lender should be allowed to file this sort of action against the debtor. If it is allowed, filing the case depends on the lender. Since this sort of legal action consumes a lot of time and equally is expensive, in many cases, lenders do not go for it. And it is difficult to collect resources from a person who just suffered from a foreclosure. He wouldn’t have missed the payment of the loan if he had the assets.
In most of the states, deficiency judgement mainly applies for recourse loans. These are the sort of loans where he lender has the power to take action against the debtor if he fails to pay the loan within the time. Apart from taking collateral, they can also take other actions like garnishing wages or levying bank accounts. But if the loan is non-recourse, there is very little chance of this judgment to be applied. In that case, the lender cannot collect anything other than collateral. Whether the loan is recourse or non recourse, also depends on the state laws.