Deficiency judgments in Maryland apply when a property goes through the foreclosure process but ultimately is not sold at a high enough price to cover the mortgage balance, the lender may pursue the borrower for the difference, also known as the “deficiency.” For example, if a total debt of $200,000 is owned, and the home sells for $150,000 as the result of a foreclosure sale, the deficiency is $50,000.
Some states allow the lender to seek a personal judgment against the borrower to recover the deficiency. In general, a lender may collect the amount of the deficiency once a judgment has been entered in the lender’s favor. If the lender has won a judgment, the borrower’s wages may be garnished, and his or her bank accounts may be levied to pay the judgment.
How Long Does a Lender Have to Collect a Deficiency Judgment in Maryland?
In Maryland, the lender may file a motion for a deficiency judgment within three years following the ratification of the auditor’s report (Maryland Rule 14-216). Ratification of the auditor’s report refers to court has approval of the foreclosure. A separate law states that a creditor can pursue a deficiency based on a promissory note within 3 years.
Can Lenders of Second Mortgages, HELOCs, and Other Junior Liens Collect From You?
Generally, when a senior lien holder forecloses, any junior liens, including second mortgages and HELOCs among others, are also foreclosed, and the junior lien holders lose their security interest in the real estate. If a junior lien holder has been sold out in this manner, that junior lien holder can sue the borrower personally to collect the unpaid balance of the promissory note. Therefore, if the equity in the borrower’s home is insufficient to cover second and third mortgages, the borrower may face lawsuits from those lenders to collect the balance of the loans.
Deficiency After a Short Sale in Maryland
In Maryland, a lender can get a deficiency judgment following a short sale. A short sale occurs when a home is sold for less than the total debt balance remaining on the mortgage. The proceeds of the sale are used to pay off a portion of the mortgage balance.
Deficiency After a Deed in Lieu of Foreclosure in Maryland
In Maryland, a lender can obtain a deficiency judgment following a deed in lieu of foreclosure. A deed in lieu of foreclosure occurs when a lender agrees to accept a deed to the property instead of foreclosing in order to obtain title. With a deed in lieu of foreclosure, the deficiency amount is the difference between the fair market value of the property and the total debt.
How to Avoid a Deficiency Judgement
To avoid a deficiency judgment with a short sale or deed in lieu of foreclosure, the agreement must expressly state that the lender waives its right to the deficiency or that the transaction is in full satisfaction of the debt. If the agreement does not contain this provision, the lender may file a lawsuit to obtain a deficiency judgment against the borrower.