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By Logan Weinkauf
Founding Attorney

If you go through the painful process of foreclosure and your home sells for less than you owe, you may face what’s called a deficiency judgment. Let’s say you owe $100,000 on your house but you don’t make that much in profit when it’s sold. You only make $50,000, which of course goes to pay off the bank. You are still liable for $50,000 in debt, and after the lender gets a deficiency judgment, it becomes a lien against any property you try to buy later, transferable to any county. 

You will want to reduce or eliminate that additional debt and a Massachusetts bankruptcy attorney can help you do that.

Foreclosure starts when you have not made your payments for more than 120 days. You will get notice of a default and notice of the intent to foreclose. If you don’t resume payments your property may be sold at auction. If there is excess money after that, not needing to reimburse the lender for the debt and penalties, you can keep it. 

Unfortunately, a deficiency judgment may happen if there is no additional debt mitigation, or in other words, you can’t pay. You may have to file for bankruptcy.

The Legal Framework of Deficiency Judgments 

According to Massachusetts law, a lender has two years after the foreclosure sale to file for a deficiency judgment. In Massachusetts, a promissory note is signed when a mortgage is taken out, and that confers certain rights on the homeowner. The foreclosure may be judicial or nonjudicial. A judicial foreclosure means a lawsuit filed in court. A nonjudicial foreclosure means the lender doesn’t have to file a lawsuit, and it’s the more common option because it’s faster and less expensive. The steps include giving the homeowner the right to request a loan modification. 

In the past, the law was generally more favorable to the lender, but now the foreclosure process includes time for a lender to get a loan modification and keep their home. Sometimes federal law comes into play, and it has its own rules. 

Stopping a Foreclosure

There are several ways to stop a foreclosure. You can give the lender the deed to your house and walk away, or you can sell the house knowing you won’t get what you need to pay off the debt, which is called a short sale. All of these options mean you will have to move out of your home.

Here are some other ways:

  • Redeeming the property pre-sale
  • Applying for modification of the loan
  • Reinstating the loan
  • Filing for bankruptcy

These options mean you can keep your home. 

Implications of Deficiency Judgments

In this section, we’ll explore the potential financial implications of a deficiency judgment following foreclosure. We’ll discuss how it can affect one’s credit score, borrowing ability, and overall financial stability.

Any foreclosure is going to have a negative effect on your credit score, making it more difficult to buy anything on credit in the future. A lower credit score may also mean that it will be impossible to get a loan to buy another home. 

You Don’t Have to Deal With This on Your Own

The best-case scenario is for you to figure out a way to avoid foreclosure altogether. A bankruptcy attorney can give you sound advice that follows Massachusetts state law. Call us today to learn more.

About the Author
Logan represents individuals and small businesses in the U.S. Bankruptcy Courts in Boston, Worcester, Springfield, and nearly every county court in Massachusetts. He approaches each case with empathy for the people behind the case. He works efficiently to deliver cost-effective solutions. He has advised people and businesses on creditor and debtor matters across diverse areas of law, including corporate law, real estate, and family law issues. This puts Logan at the leading edge of debtor’s rights, asset protection, and litigation. Logan is a trusted advisor to individuals, families, entrepreneurs, and business owners.