Deficiency judgment - a protection for the creditor
As a creditor you have the right to seek a foreclosure of the defaulting debtor’s properties. However, it may so happen that even the market value of the property foreclosed does not cover the entire amount you are supposed to realize. In such cases you may seek redress in the court of law that might pass a deficiency judgment under the foreclosure laws. Such a judgment will ensure that despite the foreclosure of the properties, the debtor still owes you money. You may also seek a Deed-in-lieu of Foreclosure in such cases.
Such deficiency judgments could be passed both in strict foreclosure and a closure by sale. In strict foreclosure if it is found that after the law day prescribed by the adjudicating court, the value of the property does not match the total debt of the debtor that he owes to you, a deficiency judgment may be delivered by the court against such debtor. The differential amount of total debt minus the value of the property would be the amount such debtor would still be obliged to pay the mortgage company. However, such judgment will only be passed after a hearing and giving both parties due opportunity of being heard. You will have to file an assessment by an authorized appraiser to drive home your claim.
No such lengthy process is required in case of foreclosure by sale since if after auction on the orders of the court it is found that some money is still due to you by the debtor, a deficiency judgment shall be passed by the court. There will however, be a discount as prescribed under the law of the land.