Deficiency Judgments
A Deficiency Judgment is a money judgment obtained by the bank after the bank realizes a loss on a mortgage foreclosure transaction. Because of current economic conditions and declining home values, many banks are filing lawsuits to obtain a Deficiency Judgment against the borrower. The following describes how Deficiency Judgments work in Michigan.
In good economic times, with increasing home values, deficiency judgments were rare because the bank could recoup the majority of the bank's losses when the home was sold at the end of the
foreclosure process. In the current economy, many home values are lower at the time of a Sheriff's Sale than the amount borrowed against the home. When a bank forecloses in these tough economic times, the amount bid by the bank is often much less than the full amount owed by the borrower. After the Sheriff's Sale, the bank realizes a loss and may (or may not) file a lawsuit against the borrower to collect the difference between what the borrower owed and the amount of the winning bid at the Sheriff's Sale.
There is no sure-fire method to determine whether a Deficiency Judgment will be sought by a lender. Each foreclosure situation is unique and banks have varying guidelines on whether it makes sense for them to file a lawsuit for a Deficiency Judgment. If the bank's loss is small, they may just write it off as a loss and forget about it. When the deficiency is substantial, and the bank determines that the former borrower is collectible, the bank may seek a Deficiency Judgment.