Unfortunately, New Jersey homeowners already in danger of losing their primary residence to foreclosure face another potential financial hardship known as a post-foreclosure deficiency judgment.
When a home is sold in a foreclosure sale for an amount that is less than what the homeowner still owes on the mortgage loan, this causes a deficiency. For example, if your home is sold in a foreclosure sale for $250,000 but you still owe $300,000 on the loan, the deficiency is $50,000. And in New Jersey, your lender could file a lawsuit against you for that deficiency.
All the proceeds from a foreclosure sale typically go to the primary lender to satisfy the mortgage loan. If there are secondary liens on the home — say a second mortgage or a HELOC (home equity line of credit) — the junior lien holders are left with nothing. They, too, may pursue a lawsuit against a homeowner for a deficiency judgment.
Since New Jersey is a judicial foreclosure state, a court will ultimately decide on the amount awarded to a lender in a deficiency suit. Lien holders must file a separate lawsuit from the foreclosure suit, and must do so within three months following the foreclosure sale.
Borrowers may be able to reduce the amount of a deficiency judgment by providing evidence of the property’s fair market value at the time of the foreclosure sale. The court would then reduce the amount owed to the difference between the outstanding loan debt and the fair market value of the property.
In New Jersey, lenders are also able to pursue deficiency judgments following a short sale or a deed-in-lieu of foreclosure. To avoid this, borrowers should be sure that any agreement made with a lender for a short sale or deed-in-lieu of foreclosure expressly states that the transaction will fully satisfy the debt.
Many lenders will pursue post-foreclosure deficiency judgments in order to recoup their investment, which is why you need an experienced New Jersey foreclosure attorney to help you fight a post-foreclosure deficiency judgment.
If you are a homeowner facing foreclosure, contact Johnson Legal PC for a consultation to find out what options exist in addressing the lender’s action and defending your rights and home under the law.
