Foreclosure deficiency laws generally refer to residential foreclosures. A deficiency occurs in situations where a home is foreclosed and the amount made from the sale of the home is less than what is owed to the lender at the time of the sale. Some lenders include not only the difference of the mortgage that is still owed but also the costs associated with the foreclosure sale, attorney's fees and, in some cases, interest and penalties. The amount still owed to the lender after the foreclosure sale is known as the deficiency.
In some states, it is legal for the lender to go after the deficiency, but other states have anti-deficiency laws, prohibiting lenders from going after borrowers for the deficiency. In those states, the amount the lender makes back from the foreclosure sale is the final amount the lender can collect and even if money is still owed after the foreclosure sale, the borrower is not responsible for that amount.
Even in states where anti-deficiency laws (sometimes called non-recourse laws) exist, there are often limitations to these rules. For example, they often cover only residential foreclosures and usually only primary residences of the borrower (that is, if the foreclosure is an investment property, anti-deficiency laws may not apply). Furthermore, certain types of debt may not be covered by anti-deficiency laws. These can include home equity lines of credit, debt consolidation loans or home improvement loans.
Some states have anti-deficiency laws that apply only in certain circumstances, such as in homes that sit on lots of a certain size. Meanwhile, some states that allow lenders to recover the deficiency may have a limit on how much can be recovered or in what circumstances the deficiency can be sought.
Although the following states have anti-deficiency laws, those laws may not extend to all home foreclosures. Because anti-deficiency law can be complex, it is in the borrowers best interest to consult with an attorney who specializes in foreclosure law to determine the extent to which there may be grounds for a foreclosure anti-deficiency lawsuit.
States that have anti-deficiency laws:
- Alaska, Arizona, California, Hawaii, Minnesota, Montana, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, Washington.
If you have had a lender attempt to collect on a deficiency in a state where anti-deficiency laws exist, you may be able to file a lawsuit against the lender.
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