Don’t Let a Foreclosure Sale Leave You Drowning in Debt: Understanding New York’s Deficiency Judgment Laws

Losing your home to foreclosure is devastating enough, but for many New York homeowners, the nightmare doesn’t end there. When a Foreclosure Sale doesn’t generate enough money to pay off the full mortgage debt, lenders can pursue something called a deficiency judgment—essentially demanding that you pay the remaining balance even after you’ve lost your home.

If you’re facing foreclosure in New York, understanding deficiency judgments and how to protect yourself from additional debt claims is crucial for your financial future.

What Is a Deficiency Judgment?

A deficiency judgment is a judgment that a mortgage lender obtains against a debtor after a foreclosure. If the foreclosure does not generate enough income to pay back the mortgage loan in full, the mortgage lender can obtain a deficiency judgment to try to recover the unpaid balance from the homeowner who has been foreclosed on.

Here’s how it works: Eventually, after finishing all of the required steps under state law, Newton’s home was sold to a new owner at a foreclosure sale for $900,000. But at the time of the sale, he owed $950,000 on the mortgage loan. The deficiency in this situation is $50,000. In this scenario, the lender could pursue a deficiency judgment for that $50,000 difference.

New York’s Protective Limitations on Deficiency Judgments

Fortunately, New York law provides important protections for homeowners facing deficiency judgments. But, the plaintiff’s judgment is limited under the law by the fair market value of the home. The amount of the deficiency judgment is equal to the amount of the debt minus the fair market value or the sale price, whichever is higher.

This means that even if your home sells for significantly less than what you owe, the deficiency judgment is capped by the property’s fair market value. For example, if the total debt owed is $500,000, and the home sold for $450,000, but the fair market value is only $475,000, the deficiency judgment can only be for $25,000.

Strict Time Limits Protect Homeowners

One of the most important protections for New York homeowners is the strict timeline lenders must follow. If the plaintiff wants a deficiency judgment, the motion must be made within 90 days after the deed is delivered to the buyer after the sale. Once the home has been foreclosed, the lender must file a motion for a deficiency judgment within 90 days from the date the buyer received the deed. If this timeframe expires, the lender may lose the right to pursue you for the loan deficit.

If no motion for a deficiency judgment shall be made as herein prescribed the proceeds of the sale regardless of amount shall be deemed to be in full satisfaction of the mortgage debt and no right to recover any deficiency in any action or proceeding shall exist. This is a powerful protection that can completely eliminate your liability for any remaining debt.

When Deficiency Judgments Can Be Pursued

Not all foreclosed homeowners are at risk for deficiency judgments. In New York, a deficiency judgment is allowed if the borrower was personally served or if the borrower enters an appearance in the foreclosure action. This means that proper legal service is required for a lender to pursue additional debt claims.

Foreclosures in New York are judicial, which means the lender must foreclose through the state court system. To begin the foreclosure, the foreclosing lender files a lawsuit (a “complaint”) against the borrower. This court process provides multiple opportunities for homeowners to defend their rights.

Defending Against Deficiency Judgments

Homeowners have several potential defenses against deficiency judgment motions. Possible defenses may include: The plaintiff did not make the motion within 90 days from the date the deed was delivered to the buyer. You were never personally served with the summons and complaint and never appeared in the action. The plaintiff did not serve you the right way with the motion for the deficiency judgment.

Another critical defense involves challenging the property’s fair market value. The fair market value of the home was less than the plaintiff says it was at the time of the sale. You must submit proof from an appraiser to support this. Professional appraisal evidence can significantly reduce or eliminate a deficiency judgment.

The Consequences of Deficiency Judgments

If a lender successfully obtains a deficiency judgment, the consequences can be severe and long-lasting. The plaintiff can take steps to collect the deficiency judgment against you, including garnishing your salary and levying your bank account for 20 years (see Collecting a Judgment). This extended collection period can impact your financial recovery for decades.

A deficiency judgment is often a major problem for homeowners, who could end up owing thousands of dollars on a home that they no longer own. However, there are solutions available to eliminate this debt.

Bankruptcy as a Solution

One of the most effective ways to eliminate deficiency judgment debt is through bankruptcy. If you file for bankruptcy, the debt will be discharged. Homeowners may also be able to have the deficiency judgment discharged in a bankruptcy proceeding.

The Law Office of Ronald D. Weiss, P.C., located in Melville, Long Island, has been providing exceptional legal representation throughout Long Island and New York since 1993. Exceptional Legal Representation Throughout Long Island and New York, Since 1993. The Law Office of Ronald D. Weiss, P.C. can consult with and represent individuals and businesses located on Long Island, New York City and Westchester in bankruptcy proceedings under all Chapters of the Bankruptcy Code. We also represent clients in negotiations, reorganizations, real estate, foreclosure defense, litigation defense, and landlord-tenant defense.

Taking Action to Protect Your Future

If the home is sold for less than what you owe, the lender may file an application for a judgment against you for the difference, known as a deficiency judgment. You may have the right to contest the amount of any deficiency judgment, including interest and penalties. Don’t assume you’re automatically liable for any remaining debt after foreclosure.

The key to protecting yourself from deficiency judgments lies in understanding your rights and taking prompt action. Whether through challenging the judgment itself, negotiating a settlement, or pursuing bankruptcy protection, experienced legal counsel can help you navigate these complex waters and protect your financial future.

Remember, losing your home doesn’t have to mean losing your financial future. With proper legal guidance and knowledge of New York’s protective laws, you can defend against unfair debt claims and work toward true financial recovery.