What is a Deficiency Judgement? Judicial, Non-Judicial Foreclosures
Today's question, what is a deficiency judgment?
1. Non-Judicial Foreclosure.
A non-judicial foreclosure is a foreclosure where the lender does not get the courts involved. Instead they appoint a trustee and that trustee forecloses on its lien pursuant to the deed of trust act.
Now following a non-judicial foreclosure the bank is prohibited or precluded from pursuing the borrower for a deficiency judgment.
That is within the context of a non-judicial foreclosure.
2. Judicial Foreclosure.
What about a judicial foreclosure? That is when courts do get involved. That is when the lender goes to court issues a summons and complaint uses the judicial system to foreclose on its lien.
Following a judicial foreclosure the bank can pursue the borrower for a deficiency balance. They essentially preserve or retain their right to pursue the borrower for a deficiency balance.
That is within the context of a judicial foreclosure.
3. What About a Second Mortgage?
Even if a first lien holder, even if a lender in first position non-judicially forecloses on its lien. If there is a second mortgage or a home equity line of credit, that underlying debt on the second survives that foreclosure. That means that the second lender can pursue the borrower following the firsts fore closure.
Something to be mindful of if you've got a two-lien situation or two mortgage situation, that second underlying debt survives foreclosure and they can pursue you for a deficiency balance.
4. The Short Sale Approval Letter.
What about the short sale? How does the short sale fit into all of this? Well within the short sale transaction we can negotiate all of those liens simultaneously and we can reach settlement with all of the various lien holders.
It is important that when the bank issues a short sale approval letter it contains the requisite deficiency language. Experienced seasoned short sale negotiators will know what to look for and be able to identify that waiver deficiency language.
That is why it is so important to work with professionals when negotiating your short sale.