Will I Owe Woney After Foreclosure?

Will I owe money after foreclosure?

1 Answer

The answer is, it depends.  Some states (very few actually, like CA) have a no deficiency judgment rule.  This means that the foreclosing lender only gets the property. 

Most states allow a lender to obtain a deficiency judgment.  When you took out the loan, you signed two important papers - the Note and the Mortgage.  The Note is your personal promise to repay the loan, basically, it says that you will pay back all of the money.  The Mortgage is merely the security for the loan, it says that if you don't pay back the money owed, the lender can take the property, sell it, and use the money from the sale to pay off your Note. 

The big issue is, what happens when the sale of the property does not net enough funds to pay off what was owed?  Answer, under the Note, the lender can obtain a judgment for the balance.  In Florida and New York (I am an attorney, admitted to practice only in these two states), the deficiency judgment is calculated by taking the amount owed (including interest, taxes, legal fees, etc.) and subtracting the higher of the actual amount bid at the foreclosure sale, or the current fair market value of the property.  The difference would be the amount still owed.  I strongly recommend that you seek legal assistance in your State, if you believe that you should not owe any money after a foreclosure sale.