State Laws

ALASKA: Alaska has a broad form of anti-deficiency statute that precludes a deficiency judgment following the completion of a nonjudicial foreclosure.

ARIZONA: Arizona’s anti-deficiency statutes prevent a lender from suing a person for any losses on a home after foreclosure. A person may not be sued by the lender for property located on 2.5 acres or less that is a single family residence or duplex. This provision is only applicable if the decrease in value is not due to the home owner’s neglect. If a lender seeks a deficiency judgment, it has 90 days after the sale of the property to begin judicial proceedings to recover any losses. Failure to do so may result in the lender’s loss of its right to recover the deficiency. In the event the property is something other than the foregoing, a deficiency judgment may still be avoided by deeding the property back to the lender prior to foreclosure. This is known as a deed-in-lieu of foreclosure. By accepting the deed, the lender is agreeing to accept the property for the amount that the borrower owes, thus eliminating any potential deficiency. However, when a person deeds the property back to the lender, he or she may be taxed on the amount of the deficiency that was forgiven by the lender. The only exception to Arizona’s anti-deficiency statutes are VA loans. VA is allowed to obtain a deficiency judgment despite current state laws that prohibit such actions.

CALIFORNIA: California’s anti-deficiency law applies only to funds used to purchase a residence. The anti-deficiency law does not apply to additional financing such as second mortgages or home-equity loans. California requires foreclosure on real property trust deeds and mortgages instead of a suit on the note. No deficiency judgment is possible where the seller takes back a purchase money note and deed of trust as part of the sale financing. If a third-party lender finances the purchase, the third party cannot recover a deficiency judgment if that loan is given and used for paying all or part of the purchase price, is secured by the property purchased, is a property for use by no more than four people, and is owner occupied. A deficiency judgment is not available if the lender forecloses by private sale by trusteeinstead of a judicial foreclosure law suit. Federally made or guaranteed loans are generally not subject to the anti-deficiency laws of the state. V. A., FHA and Small Business Administration loans may subject the borrower to a deficiency judgment. A third-party refinance of a purchase money loan is not a purchase money loan and the buyer could be personally liable for payment of the seller’s note after a judicial foreclosure.

FLORIDA: In Florida, mortgages must be foreclosed by filing a lawsuit in court. Florida is unusual in that the state has passed few statues regulating foreclosures. A sale can be set aside if there is an error in the procedure to foreclose; however, it cannot be set aside because of a too low sale price. After the sale takes place, the sale terms must be confirmed by the court. If the terms of the sale order are met, title in the buyer’s name can become complete by filing a certificate of title. At the discretion of the court, junior lien holders can redeem the property, up to the time of the confirmation of the sale. The equity of redemption is cut off when the sale is confirmed, but it exists prior to that time. The borrower can redeem the property from foreclosure by curing the default prior to confirmation. Any action for a deficiency must be filed within four years from the foreclosure.

MASSACHUSETTES: Under the Massachusetts Uniform Fraudulent Conveyance Act if the foreclosure sale took place for less than market value, it may be ruled to be a fraudulent conveyance. Therefore the lender should have the property appraised at the time of foreclosure. In Massachusetts, there are two methods by which a mortgage may be foreclosed. The lender may enter and take possession of the premises and then wait three years for title to become final in the name of the lender. The other method is that the lender may complete a non-judicial sale under a power of sale clause. Unless the borrower can come up with enough money to pay off the mortgage within three years, however, the lender’s ownership becomes final and the borrower’s right to redeem the property is cut off. Despite this provision, the usual method of foreclosure is through sale under a power of sale clause in the mortgage. The sale must be conducted in accordance with the requirements specified in the power of sale clause. Notice of the foreclosure must be given. There is no requirement for the borrower to actually receive the notice, merely for the lender to make a diligent effort to locate the borrower. If there is any money left from the foreclosure sale after paying off the lender, the surplus goes to the borrower. A proper sale prevents the borrower from exercising any right to reclaim the property through redemption. If the foreclosure sale proceeds are not enough to pay off the lender, then the borrower is liable for the deficiency.

NORTH DAKOTA: In North Dakota, a lawsuit may be brought in district court for foreclosure or for satisfaction of a mortgage on real estate. Prior to bringing any lawsuit, the lender must give the borrower advance notice. This notice must be sent no later than 90 days before the suit is filed. The notice must state a description of the real estate, the date and amount of the mortgage, the amount due for principal, interest, and taxes. The notice must also state the time period for redemption, which is either one year, or, for small tracts with substantial balances and the properly worded mortgages, six months. The notice must be served by registered or certified mail addressed to the owner of record. If the borrower brings in the missing payments any time within 30 days after receipt of the notice, the loan must be reinstated. North Dakota law requires the lawsuit paperwork to include several allegations that are unusual. First, North Dakota law requires the attorney bringing the suit to hold a power of attorney to act on behalf of the lender. Second, the lender must also declare in the original lawsuit whether the lender will pursue a deficiency judgment against the borrower if the foreclosure sale does not bring in enough money to pay off the outstanding loan balance. The lender may not ask for a deficiency in the foreclosure suit if it has already brought another suit just to collect on the loan. If the borrower can bring in the missed payments plus foreclosure costs before the decree of sale is issued by the court, then the lender’s lawsuit to foreclose must be dismissed. Whenever the real estate is sold at foreclosure, the sheriff or deputy must give the buyer a certificate of sale, and at the expiration of the redemption time period, a deed must be given to the buyer. Any cash surplus from the sale, beyond that needed to pay off the mortgage and the foreclosure costs, must be paid to the borrower.

OREGON: Foreclosure in Oregon may be either by court action or by advertisement and sale. The borrower, or any junior lien holder, can cure the default prior to foreclosure. A deficiency judgment cannot be obtained through a non-judicial deed of trust foreclosure by advertisement. A person who was entitled to receive notice of the foreclosure but did not receive it may sue to invalidate the foreclosure at any time within five years of the sale. On a judicial foreclosure, the borrower or a successor in interest may redeem property within 180 days after sale.

SOUTH CAROLINA: South Carolina uses judicial foreclosure. The lender must file a lawsuit and seek either an order of sale or a judgment for the loan balance against the borrower or both. Deficiency judgements are permitted. Within 30 days after the sale, a borrower who was sued for a deficiency can apply to the court for an order of appraisal. The defendant appoints one appraiser, the judgment creditor appoints another, and the judge appoints another. If the appraised value is greater than what remains owed on the loan, after subtracting the foreclosure sale proceeds, then there is no deficiency. However if it is less, then the borrower still gets credit against the judgment for the higher appraised value of the property.

TEXAS: Texas has laws which make foreclosure easy. Deficiency judgments can only be for the difference between fair market value and the balance owed on the loan. There is no right of redemption.


Inside State Laws