If you go through a judicial foreclosure in New Jersey, but the sale price isn’t enough to cover the balance of your mortgage your lender can come after you for the deficiency following the foreclosure sale.
What is a Deficiency After a Foreclosure?
When a lender forecloses on a mortgage the total debt owed to the lender by the borrower often exceeds the foreclosure sale price. The difference between the sale price at the Sheriff Sale and the total amount owed is called a deficiency.
For example: If you owe $350,000 on your first mortgage and it is sold at the Sheriff Sale for only $300,000 the deficiency balance is $50,000. Also, if you have additional mortgages on your home, you will also owe the balances due on those mortgages.
What is a Deficiency Judgment?
A deficiency judgment is a personal judgment that a court enters against a borrower. It allows the lender to collect from the borrower directly.
How Does the Lender Get a Deficiency Judgment in New Jersey?
In New Jersey in order to recover the deficiency balance from the borrower personally, the lender must file a separate lawsuit within three months from the date of the foreclosure sale, or if confirmation of the sale is required, from the date of the confirmation. Note that second or third mortgage holders may have a year or more to sue for a deficiency balance.
The Homeowner Can Dispute the Amount of the Deficiency Judgment in NJ
Although lenders have the right to sue for the deficiency balance they generally do not. In the event of a lawsuit, the borrower has the right to dispute the amount of the deficiency balance if they think that the foreclosure sale price was unfairly low and therefore the deficiency balance too large. The homeowner does this by filing an answer to the lender’s deficiency lawsuit stating that the house was sold for less than fair market value and by producing evidence as to the property’s fair market. If the homeowner is successful, the court will lower the amount of the deficiency judgment to the difference between the debt and the fair market value as of the foreclosure sale date
Filing a Bankruptcy Will Eliminate the Deficiency Balance You Owe
Filing a Chapter 7 or Chapter 13 bankruptcy will eliminate the deficiency balance that you owe. As soon as you file the bankruptcy the automatic stay will take effect and stop the mortgage lender from continuing the lawsuit to recover the deficiency. Importantly, when you file for bankruptcy, you will not have the tax consequences that may occur when a borrower has gone through a foreclosure as the foreclosure deficiency is considered forgiveness of debt income.
Contact Levitt & Slafkes for a Free Consultation!
Contact Levitt & Slafkes if you are sued in a foreclosure action. We are experienced foreclosure defense lawyers who know how to make a difference in your financial situation. We have experience you can rely on and we care about your results. We listen to you, describe your legal options, and advocate for your legal rights. Contact Levitt & Slafkes, P.C. at (973) 323-2953 or reach us online to schedule a free consultation.