Newark Consumer Law Firm

What is a Deficiency Judgment?

New Jersey is a “recourse state” in mortgage law, permitting lenders recourse in the form of a lawsuit to recover the difference between sale proceeds and the balance on the mortgage in the event of a short sale, deed-in-lieu, or foreclosure.

There are important limitations in New Jersey law, among them that the suit must be filed within 3 months of the sale. If the suit is filed and the judgment obtained, the lender has 20 years to attempt to collect it. In the event of such a judgment, bankruptcy is a tool that can be used to wipe the debt.

Will I be affected by a deficiency judgment?

Deficiency actions are more likely to occur when the borrower has other assets or is not delinquent on other loans, creating the appearance of the ability to repay. If the borrower is late everywhere and has no assets, the lender may instead issue 1099 to the borrower, declaring the amount of the deficiency as a payment to the borrower. In this instance, the borrower may have incurred a tax liability, depending on when it happened. The Mortgage Forgiveness Debt Relief Act of 2007 eliminates such tax liabilities if the sale occurred between 2007 and 2013.

There are several defenses against deficiency judgments. One is a counterclaim regarding the fair market value of the residence. Another is negotiating a waiver of deficiency in the sale. The final defense would be a bankruptcy filing after a judgment.

When confronted with the possibility of a deficiency judgment, qualified legal advice is essential. Todd Murphy Law can help every step of the way of dealing with deficiency and its impact on your financial future.

Call Todd Murphy Law today!.