Dangerous Deficiencies

A common question posed by homeowners in financial distress is “Can the lender get a deficiency judgment against me?”  A deficiency judgment is a charge imposed on the owner when the foreclosure sale price fails to fully pay the mortgage balance.   Whether such a judgment is possible depends upon the property’s location because each state has crafted its own rules for this situation. 

 

Numerous websites attempt to explain the mortgage foreclosure process and often provide a list of the states where deficiency judgments are allowed.  Unfortunately, these lists can be wrong.  Many such sites say Minnesota allows this type of judgment while other sites reach the opposite conclusion.   

The question “Is a deficiency judgment allowed due to a foreclosure?” cannot be answered by a simple yes or no, at least in Minnesota.   Here’s some of what you need to know.  Minnesota has two types of mortgage foreclosure processes – foreclosure by advertisement and foreclosure by action.  The former method comprises roughly 95% of Minnesota cases and the general rule is that no deficiency judgment is allowed with a first mortgage foreclosure by advertisement.  Foreclosures by action,however, do allow the lender to seek deficiency judgments but it is not automatically imposed.

But the general rules have exceptions!!!   Here’s just one example – if there are multiple mortgages on a property (including a home equity line of credit), a junior lien-holder can obtain a deficiency judgment to recoup the amount of that loan.  Other exceptions are not covered in this post by design.  Obviously, things can get very complicated so here are the most important things to remember:

  • If you are in financial distress, seek professional help right away, preferably before you miss any mortgage payments.  Contact an attorney or the Minnesota Home Ownership Center for advice. 
  • Don’t fall for any foreclosure rescue scams.  
  • Don’t get your legal advice from an Internet website, including this one.

 

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