The mortgage lender can get a judgment lien against your personal property and other real estate that you own within the county, giving it a security interest in that property. This means the bank can foreclosure on that other real estate. It might do this if you have equity and the bank thinks it’ll get enough money to make the effort worthwhile. Even if you own real estate in another county, the mortgage creditor can transfer the judgment to the county where the real property is located. Watch: Erin Ade and Edward Harrison discussing Deficiency Judgments.

With a deficiency judgment lien, the creditor also has an interest in any personal property that you owned at the time it filed the judgment lien. This includes jewelry, equipment, business assets, art, antiques, electronics, and any other valuables.

Wage Garnishments: Just like any other lien creditor, the mortgage creditor can take part of your employment income. If creditor knows where you work, it may go the garnishment route. There are some limits as to how much money can be garnished from your income, since you are entitled to exempt some of your personal income. Under federal law, creditors can usually only garnish up to 25% of your take home pay. There may also be limits on how long they can continuously take money out of your paycheck.

Wage Garnishments: The mortgage creditor may also attempt to levy your bank accounts. This may be relatively easy for them to do if you had previously paid the lender with checks drawn on an open bank account. As with your other assets, you may be entitled to exempt a portion of the funds in your account.

Will the Lender Try to Collect the Deficiency? Just because a mortgage creditor has a deficiency judgment does not mean it will try to collect. Many creditors find that it is just not worth the cost and expense to pursue collection, and instead write-off the debt and issue you a 1099-C. If this happens, you might owe taxes on the forgiven amount.

If the lender does try to collect: If the creditor thinks that you are collectible — for example, because you have steady income or assets — it may take further collection action on the deficiency judgment. If you cannot successfully protect yourself and your assets using defenses and exemptions specific to wage garnishment, levies, attachment, or foreclosure, consider filing bankruptcy. If bankruptcy is not an option for you, you may be able to work out a payment agreement with the creditor.

Vacating Default Deficiency Judgments: If the creditor had taken a default judgment against you and you were unaware of the deficiency case or were unable to defend yourself, you may be able to get the court to remove or modify the deficiency judgment. You must act quickly and have acceptable legal and factual reasons for this request.

Read this useful article to find out What’s the Difference Between a Property Lien and a Judgment Lien?

One comment on “What, Exactly, Are Deficiency Judgments? And How Do Lenders Go About Collecting Them Against The Borrower?
  1. Ronald Perez says:

    The laws governing deficiency judgments vary from state to state. Some states give lenders an unfettered right to seek deficiency judgments after a foreclosure sale. Others allow deficiency judgments if the foreclosure goes through court (called a judicial foreclosure) but not if the foreclosure takes place outside the court system (called a nonjudicial foreclosure). Other common limitations include prohibitions against deficiency judgments in foreclosures of mortgages used to purchase a borrower’s primary residence and restrictions on the amounts that may be recovered in a deficiency lawsuit.

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