How to Avoid a Deficiency Judgement After Foreclosure

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Before we get into the discussion on how to avoid owing money to your lender after a foreclosure, let’s define the key term here.

What Is a Deficiency Judgement?

A deficiency judgement is one that allows your lender to sue you for the difference between either what they are owed or the current market value of the home and what was paid for it at the foreclosure auction. The laws regarding a deficiency judgement after foreclosure vary from state to state so it is important to know how the process works in your state before proceeding. In many cases, lenders do have the right to pursue this type of judgement.

The First Line of Defense: Talk to Your Lender

The best way to avoid a deficiency judgement after foreclosure is talk to your bank before the foreclosure process is complete. Ask them directly if they will pursue a deficiency judgement against you. Ask them if they would agree to sign legal paperwork waiving their right to pursue a deficiency judgement (this is very important to do if they agree to it; you want it in writing for your records).

Short Sale: If you are doing or at least trying to do a short sale on the home, your lender may be more inclined to waive their right to this kind of judgement. Talk to the realtor handling your short sale to see what help they can provide.

Deed in Leiu: If you are doing a deed in lieu of foreclosure, you will also want to ask your bank to include this as part of the paperwork.

Voluntary Foreclosure: If you are simply walking away from your home (eg, doing a strategic default / voluntary foreclosure) and have not tried to work out a deal with your lender/ bank, it may be difficult to get them to agree to this.

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Check With a Foreclosure Attorney

If you have tried to talk to your bank about this issue and they either will not talk to you about it or refuse to waive their rights to a deficiency judgement after foreclosure, it might be worth it to consult a foreclosure attorney to see what, if any, options you have. They should be able to give you a clearer idea of whether or not the bank will pursue a judgement in your case. They may also have suggestions for how you could get your bank to agree to not pursue one.

The good news is that banks do not often pursue a deficiency judgement after foreclosure.

Is Your Foreclosure in a Judicial or Non-Judicial Foreclosure State? In states where there is a non-judicial foreclosure process, the bank would typically have to file a lawsuit against you for the deficiency judgement. This takes more time and legal resources on their part.

If you live in a state where judicial foreclosure takes place, the deficiency judgement can sometimes be included in foreclosure case. It is worth your while to check to see if this is the case in your situation.

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Author Disclaimer: The author (Juliana Montgomery) does not guarantee the accuracy of the information provided in this article and is not liable for reliance on this information. In using this article, you agree that its information and services are provided “as is, as available” without warranty, express or implied, and that you use this article and the information contained in it at your own risk. You agree that the author has no liability for direct, indirect, incidental, punitive, or consequential damages with respect to the information, services, or content contained in this article.

Foreclosure is enough of an issue to get over without having to worry about a deficiency judgement after foreclosure. Try to resolve this issue before your foreclosure process is complete. Get more information at

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