When a lender forecloses on a mortgage and sells the property, it sometimes happens that the sale price does not cover the entire mortgaged amount. For example, you owe the bank $250,000 but the home only sells for $200,000 at auction. The $50,000 difference is called a deficiency.
Utah is a state that allows lenders to launch a deficiency action against you for the outstanding amount, although they must do so within three months of the foreclosure sale. Once they get a deficiency judgment, they may collect this $50,000 from you by levying your bank account, garnishing your wages, and using other court-approved methods for collecting judgments.
Judicial Foreclosures
Some Utah foreclosures are judicial, meaning that they are carried out through the state court system. The amount a lender may seek in a deficiency judgment is limited to which of the following has less:
- The total amount owed minus the fair market value of the home or
- The total amount owed minus the sale price after foreclosure
If the foreclosure was a judicial one, the deficiency judgment may be entered as part of that action.
Short Sale Deficiencies
A short sale takes place when you sell your property for less than the amount remaining on your mortgage and use the process to pay off part of the balance. Like foreclosures, a Utah lender can obtain a deficiency judgment up to three months after the sale, unless there is an agreement that expressly states that the lender waives their right to the deficiency.
Second Mortgages and Junior Liens
When the senior lienholder forecloses on your property, second mortgage holders and other junior lienholders are also foreclosed automatically. If the equity in the home doesn’t cover these liens, the lenders may sue you to recover the balances.
Deeds in Lieu of Foreclosure
Sometimes lenders will opt to obtain title by accepting a deed to your property instead of foreclosing on it. In this instance, the deficiency amount is the difference between the property’s fair market value and the total amount you owe. If the agreement does not state that accepting the need satisfies any debt, the lender can seek a deficiency judgment against you for the balance.
If you are facing a deficiency action from your lender, contact Arnold, Wadsworth & Coggins today. We are one of the few Utah law firms that has a strong focus in defending deficiency cases and will protect your interests with a dedication and legal acumen that has made us a leading name in the area of deficiency action defense.
