In Connecticut, if the foreclosure selling price doesn’t pay the remainder of your mortgage debt, the lender may come after you for the “deficiency.
In certain jurisdictions, such as Connecticut, the foreclosing bank may pursue a personal judgment against the debtor, known as a “shortfall judgment,” to collect the deficiency. Once the bank receives a deficiency judgment, depending on state law, it may normally collect the amount—in our case, $50,000—through traditional collection means, such as garnishing wages or levying a bank account.
How Connecticut Foreclosures Work
In Connecticut, foreclosures are “judicial,” which means the bank must go through state court to foreclose. The foreclosure may be a strict foreclosure or a foreclosure by sale under Connecticut law. Both types of foreclosure are handled in court.
The foreclosing bank in Connecticut may obtain a deficiency judgment in either a strict foreclosure or a foreclosure by sale.
Strict Foreclosures and Deficiency Judgments
In the event of a strict foreclosure, the bank may pursue a deficiency judgment against the borrower within 30 days of the redemption term expiring. The judge’s deficiency judgment is restricted to the difference between the total debt and the property’s fair market value. 49-14 (Conn. Gen. Stat.).
Foreclosures by Sale and Deficiency Judgments
If the property sells for less than the assessed value, the bank must first credit the borrower with one-half of the difference. Connecticut General Statutes 49-28.
Deficiency Judgment Following a Connecticut Short Sale
A “short sale” occurs when you sell your house for less than the entire amount of your mortgage obligation and the profits pay down a part of the remainder. After a short sale in Connecticut, the bank might get a deficiency judgment.
A short sale agreement must specifically specify that the bank waives its claim to the shortfall in order to avoid a deficiency judgment. If this waiver is not included in the short sale agreement, the bank may initiate a lawsuit to get a deficiency judgment. However, if the bank forgives the shortfall, you may incur tax implications.
In Connecticut, a Deficiency Judgment Following a Deed in Lieu of Foreclosure
A “deed in lieu of foreclosure” (deed in lieu) occurs when a bank decides to accept a deed to the property instead of foreclosing to get title to the property. The deficiency amount with a deed in lieu is the difference between the total debt and the fair market value of the property.
A deed in lieu of payment is often assumed to completely discharge the obligation. However, Connecticut law does not prohibit the bank from obtaining a deficiency judgment as a result of this kind of transaction. As a result, a bank may attempt to hold you accountable for a shortfall resulting from a deed in lieu. In order to prevent a deficiency judgment, the agreement must specifically specify that the transaction fully pays the debt. If this clause is not included in the deed in lieu contract, the bank may bring a lawsuit to seek a deficiency judgment. Again, if the loan is forgiven, you may be subject to taxation.
Speak with a Connecticut Foreclosure Attorney
If you are facing foreclosure and a probable deficiency judgment in Connecticut, you should consult with a foreclosure attorney. A lawyer can advise you on several possibilities, such as loss minimization and if you have any defenses to the foreclosure.