State Anti-Deficiency Laws & Non-Recourse Laws

By

State Anti-Deficiency Laws and Non-Recourse Laws at a Glance

If you are about to allow a foreclosure or short-sell your home, you may wonder what the lender can do about any left-over debt. In some states, the lender cannot pursue you for the shortfall if your home’s market value is less than the balance of the loan. These states have what are called “no-recourse” or “anti-deficiency” laws. The table below summarizes each state’s anti-deficiency laws.

The Bills.com article and the definitions below this table explain the terms used here. Consult with a lawyer who has real property experience to see how your state’s rules apply to the facts in your situation.

  Foreclosure Does This State Offer an Anti-Deficiency Law? Redemption Laws
Type(s) Typical
State-By-State Anti-Deficiency Laws
Alabama Both Non-Judicial No 1 year Alabama Code
Alaska Both Non-Judicial Yes. Deficiency judgments only if the lender pursues judicial foreclosure under the promissory note; no separate "deficiency judgment" is entered. Non-judicial, Yes. Judicial, No. Alaska Statutes and Title 34, Ch. 20, Section 100
Arizona Both Non-Judicial Yes. Single one-family or single two-family dwelling on 2½ acres or less. Must reside in property 6 months. Non-judicial, no.
Judicial, Yes.
Arizona State Code in 33-814.G and 33-729.A.
Arkansas Both Non-Judicial No. Borrowers must receive credit for the greater of the foreclosure sales price or the fair market value of the property. For non-judicial, lender must sue within 1 year. Judicial, 1 year. Non-judicial, no. Arkansas Code
California Both Non-Judicial Yes, for purchase money loans No California and
Colorado Both Non-Judicial No. Lenders must bid fair market value on the property in the event that total debt owed exceeds the property value less reasonable expenses; if the borrower can show lenders bid less than fair market value, the borrower can avoid a deficiency judgment. 75 days and Colorado Revised Statutes
Connecticut Judicial No. "Strict foreclosure," lender may sue borrower separately. "Decree of sale," then 1/2 of deficiency is owed. "Strict foreclosure," yes. General Statutes of Connecticut
Delaware Judicial No No Delaware Code
District of Columbia Non-Judicial No No District of Columbia Code
Florida Judicial No, but lender must serve lawsuit personally and deficiency is court’s discretion. Borrower must receive credit for the greater of fair market value of the property or the foreclosure sale price. Limited Florida Statutes
Georgia Both Non-Judicial Deficiency lawsuit must be court-approved within 30 days of sale. No Official Code of Georgia
Hawaii Both Non-Judicial Allowed if the lender pursues judicial foreclosure. Outlawed for nonjudicial foreclosure of mortgage signed after July 1, 1999. Allowed for earlier foreclosures. No Hawaii Revised Statutes and
Idaho Both Non-Judicial No. Deficiency lawsuit must be filed within 90 days of sale. Limited to the difference between the balance owed and the fair market value of the property. 1 year for more than 20 acres Idaho Statutes
Illinois Judicial No. Borrower must be personally served with deficiency suit. Judges have great discretion, thus judgments rarely granted. 90-day redemption Illinois Compiled Statutes
Indiana Judicial No. Borrower must be personally served with deficiency suit. No Indiana Code
Iowa Judicial Yes, if lender chooses foreclosure without the right of redemption. Mortgaged property is a one- or two-family dwelling and is borrower's primary residence; and borrower does not exercise its right to demand a delay of the foreclosure sale of up to 12 months. No Iowa
Kansas Judicial No, if court confirms the sale. Borrower may contest the deficiency if the foreclosure sales price is less than the FMV. 1 year Kansas Statutes
Kentucky Judicial No. Deficiency judgment is entered automatically if the sale proceeds less expenses are not sufficient to cover the debt owed Yes, if residence sells for less than two-third of the appraised value. Kentucky Revised Statutes
Louisiana Judicial Deficiency judgment is only available if property is appraised prior to foreclosure sale and lender uses executory proceeding. No Louisiana Code Title
Maine Judicial No. Lender must credit the borrower for fair market value of the property. 90 days Revised Maine Statutes
Maryland Both Non-Judicial No Court-determined Maryland Rules Title 14, Ch. 200
Massachusetts Both Non-Judicial No. Lender must give borrower notice in writing prior to the foreclosure sale that it intends to pursue deficiency. No General Laws of Massachusetts
Michigan Both Non-Judicial No. May collect deficiency if judicial foreclosure. Rights limited in non-judicial. 6 months following non-judicial Michigan Compiled Laws ; and EPIC Act 236, Sections 600 and 700
Minnesota Both Non-Judicial Yes. Advertisement: No deficiency allowed. Judicial: Allowed, but FMV determined by jury. 6-12 months Minnesota Statute
Mississippi Both Non-Judicial No. Must file for judgment within 1 year of foreclosure. Mortgagee bid must be reasonable. No Mississippi State Code
Missouri Both Non-Judicial No. Heavy burden if judicial. Light burden if non-judicial. 1 year Missouri Revised Statutes
Montana Both Non-Judicial Yes in non-judicial. No in judicial technically, but functionally impracticable. No Montana Code Annotated
Nebraska Both Non-Judicial No. Action to collect must begin in 90 days for non-judicial and 5 years for judicial. Borrower must receive credit for the FMV. No Nebraska Revised Statutes
Nevada Both Non-Judicial No. Borrower must receive credit for the greater of the FMV or the foreclosure sale price. Suit must be filed within 6 months of foreclosure sale. No in non-judicial. Yes in judicial Nevada Revised Statutes Chapters , and , and
New Hampshire Both Non-Judicial No No New Hampshire Revised Statutes
New Jersey Judicial No. borrower must be given credit for the FMV. Suit must be brought within 3 months of foreclosure sale. 10 days or 6 months depending on lender pursuing deficiency New Jersey Permanent Statutes
New Mexico Judicial No. Deficiency recovery restricted in low-income cases. 9 months New Mexico Statutes Annotated , Articles 48-7-1 to 48-7-24 and Articles 48-10-1 to 48-10-21
New York Judicial No. Action to collect must begin in 90 days. Borrower receives credit for the greater of the foreclosure sale price or the FMV. No New York State Consolidated Laws
North Carolina Both Non-Judicial Yes, if lender sold property or borrower. No in conventional sales. Recovery limited in some circumstances. No North Carolina General Statutes , Sections 21.36 and 21.38
North Dakota Judicial Yes if residential property <4 units and <40 acres. 1 year North Dakota Century Code
Ohio Judicial No. Action to collect must begin in 2 years. No Ohio Revised Code
Oklahoma Both Non-Judicial No. Action to collect must begin in 90 days. Deficiency judgment if lender pursues non-judicial foreclosure and the borrower must receive credit for the greater of the FMV or the foreclosure sale price No Oklahoma Statutes Citationized , Section 686
Oregon Both Non-Judicial Yes. Lenders can generally not obtain a deficiency judgment on residential property. 180 days Oregon
Pennsylvania Judicial No. Action to collect must begin in 6 months. No Pennsylvania and
Rhode Island Both Non-Judicial No 3 years in some circumstances Rhode Island General Laws Ch. 34-27
South Carolina Judicial No. Can ask for appraisal to reduce deficiency. No South Carolina Code of Laws
South Dakota Both Non-Judicial No. Borrower must be credited for the FMV. 180 days South Dakota Codified Laws Ch. 21-47
Tennessee Both Non-Judicial No 2 years Tennessee Code Title 21, Ch. 1, Section 803
Texas Both Non-Judicial No. Borrower must be credited for the FMV. No Texas Statutes
Utah Both Non-Judicial No Yes Utah Code Title 38, Ch.1-16 and Title 57, Ch. 1
Vermont Both Judicial No No Vermont Statutes Title 12, Ch. 163
Virginia Both Non-Judicial No No Code of Virginia Title 8.9A Part 6 and Title 55, Ch. 4
Washington Both Non-Judicial Yes. No collection allowed for nonjudicial foreclosure. Collection allowed for judicial. 12-months for judicial. Revised Code of Washington
West Virginia Both Non-Judicial No No West Virginia Code Articles 1 and 16 of Ch. 38
Wisconsin Non-Judicial Yes. Deficiency action must be filed at the time the foreclosure action starts. Recovery amount limited. 6 or 12 months Wisconsin Statutes and Annotations, Ch. 846
Wyoming Both Non-Judicial No 3 months. Balance due plus 10% Wyoming Statutes Title 34, Ch. 4

What the Terms in the Table Above Mean

See the Bills.com article for a general discussion of this subject.

Type of Foreclosure

Foreclosure is the legal process through which a lender (most typically a mortgage lender) claims an asset from the consumer borrower. Foreclosure is almost always the result of default on payment.

Foreclosure can be judicial, through the state court system, or privately. A judicial foreclosure means that the foreclosure is a court-ordered legal process. The lender must file an action — a lawsuit — against the homeowner. This process is time consuming and subject to a sequence of events and calendar that consumes months or years. A judicial foreclosure helps by buying the homeowner time to make alternative housing arrangements.

The non-judicial process is made possible by a legal document called a deed of trust. Many western states use deeds of trust in creating home loans. This system avoids a judicial foreclosure, and speeds the foreclosure process. Because the mortgage loan terms specify that default kicks off the sale process right away (without going through the court system), the lender can start the foreclosure process quickly. The the borrower has a fixed period of time (which varies state by state) to either sell the home, or negotiate to solve the financial problem. If the consumer does not accomplish this on their own, the lender then can seize the property and auction off the home to the highest bidder.

Anti-Deficiency Law

A deficiency balance arises if the sale proceeds are not sufficient to pay the entire balance owed on all secured loans. Under common law, a borrower has liability for a deficiency balance.

A dozen or so states outlaw or restrict the collection of a deficiency balance related to a home foreclosure. These are called anti-deficiency or no-recourse laws. Beware: Anti-deficiency laws are rarely simple or straight forward. If your state of residence offers an anti-deficiency law, do not assume you are protected unconditionally. Take the time to study your state's laws in detail, and consult with a lawyer who has real property law experience with your questions.

Redemption

Some states allow a homeowner who had their home foreclosed a period of time after the foreclosure to pay-off the mortgage and reclaim the property. In redemption states, it is common for the lender to buy the homeowner's redemption rights so that it can sell the property at auction without any possible claims against the title.

Laws

Read your state’s laws to learn more your the foreclosure and anti-deficiency rights.

Read the Bills.com to learn more about the foreclosure laws important to you. See the Bills.com to learn more about the state laws that apply when you buy a home or refinance a home loan.

Although Bills.com takes reasonable care to provide accurate information, errors in law and interpretation can occur. Consult with a lawyer in your state who has experience in real property law to understand your rights and liabilities.

Rate this article
Not helpful
Awesome

No Comments


Waiting for comments to load Loading more comments
Thanks for your feedback!

Tool Box   Easy to use resources to help you find solutions to your money questions