Anti-Deficiency Protection for Homeowners in Foreclosure

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 16, 2021

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If a borrower/purchaser fails to make his mortgage payment and the property is foreclosed (title is taken by the lender through legal action), and the property is sold to pay the mortgage, a deficiency between the sale price and the outstanding balance of the mortgage could occur. Some states have anti-deficiency laws to protect these purchasers who default on their purchase money loans secured by their primary residences. 

Impact of Anti-Deficiency Legislation

Under anti-deficiency laws, if the mortgage loan is a purchase money mortgage for the purchase of a dwelling occupied by the borrower, this purchaser will not be held responsible for any deficiency. The lender can only recover the property and the proceeds of a subsequent sale. The purchaser is not responsible for any deficit between the sale proceeds and the outstanding loan balance. The lender cannot take further action against the purchaser.

Anti-deficiency laws typically provide no protection for other than purchase money mortgages (such as a second mortgage obtained after the original acquisition), and there is no protection when the property is not used as the primary residence of the purchaser.

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