If the profits of a foreclosure sale do not cover your mortgage debt, the lender has the right to sue you for the “deficiency.”
In a foreclosure, the borrower’s total mortgage obligation may surpass the value of the house at the foreclosure auction. A “deficiency” is the difference between the total debt and the selling price.
To collect the deficit, the lender in certain jurisdictions may pursue a personal judgment (called a “deficiency judgment”) against the debtor. In general, after a deficiency judgment is obtained, the lender may collect the amount—in our case, $50,000—from the borrower by standard collection techniques, such as garnishing the borrowers’ wages or levying the borrowers’ bank account.
If you go through a West Virginia foreclosure and the selling price is insufficient to meet the mortgage debt, your lender may seek a deficiency judgment against you.
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West Virginia Allows Deficiency Judgments Following Foreclosure
Most persons who get a loan to purchase a house in West Virginia sign a promissory note and a deed of trust. If the borrower fails to make loan payments, the lender has the authority to foreclose. In West Virginia, the majority of foreclosures are nonjudicial, which means the lender does not have to go through state court to foreclose. (In judicial jurisdictions, the lender must go via the state court system to foreclose.)
Following a nonjudicial foreclosure, the lender in West Virginia may acquire a deficiency judgment by filing a lawsuit.
Can Second Mortgage, HELOC, and Other Junior Lien Lenders Collect From You?
When a senior lienholder forecloses, any junior liens (for example, second mortgages and HELOCs) are likewise foreclosed, and the junior lienholders lose their security interest in the real estate. If a junior lienholder is sold out in this way, the junior lienholder has the right to sue you personally on the promissory note. As a result, if the equity in your property does not cover the second and third mortgages, you may face litigation from those lenders to collect the loan balances.
West Virginia Deficiency Judgments Following Short Sales
A “short sale” occurs when you sell your house for less than the outstanding amount on your mortgage loan. The selling earnings pay down a part of the debt.
In order to avoid a deficiency judgment after a West Virginia short sale, the short sale agreement must specifically indicate that the lender waives its right to the shortfall. If this waiver is not included in the short sale agreement, the lender may initiate a lawsuit to get a deficiency judgment.
West Virginia Deficiency Judgments Following Deeds in Lieu of Foreclosure
A “deed in lieu of foreclosure” occurs when a lender decides to accept a deed to the property rather than foreclose. The deficiency amount in a deed in lieu of foreclosure is the difference between the borrower’s total debt and the home’s fair market value.
A conveyance in lieu of foreclosure is often regarded to completely settle the obligation. However, West Virginia law does not prohibit the lender from obtaining a deficiency judgment after a deed in lieu of foreclosure. As a result, the lender may attempt to make the borrower accountable for a shortfall resulting from this kind of transaction.
A deed in lieu of foreclosure must specifically specify that the transaction is in full payment of the debt to prevent a deficiency judgment. If this clause is not included in the deed in lieu of foreclosure agreement, the lender may initiate a lawsuit to get a deficiency judgment.
Finding the Foreclosure Laws in West Virginia
Nonjudicial foreclosures in West Virginia are governed by West Virginia Code sections 38-1-3 through 38-1-15. Statutes change, so double-checking is usually a good idea. The way courts and other agencies interpret and implement laws may change. Some restrictions may even differ across states. These are just a few of the reasons why you should visit a lawyer if you are facing foreclosure.