- Property-related contracts are litigated in the state where the property is situated.
- A foreign judgment must be domesticated in the debtor's state of residence.
If a creditor has a deficiency balance in one state and I move to another, which state laws apply?
I have a property in WA state in foreclosure. It was my primary residence, however I now live in SC. Is it likely the bank will obtain a judgement for the deficiency? If so, since I now reside in SC will they be held to SC laws and restrictions for collecting on the judgment — such as no wage garnishment, etc? Or can they garnish my SC wages since WA allows wage garnishment.
Let me preface what I am about to write with an important disclaimer: Questions concerning enforcing judgments across state borders are difficult to answer with general, one-size-fits-all replies. The facts in each case are significant, and the laws vary in each state. Learn the most precise answer to your legal question from an attorney in your state.
In general, real property-related contracts are litigated in the state where the property is situated. Foreclosure, for example, takes place in that property's state court, and the court uses that state's statutes and case laws to complete the foreclosure process.
If a foreclosure results in a deficiency balance, in most states the creditor can choose to collect the deficiency privately. The creditor may choose to sell the rights to collect the judgment to a collections agent. The rights are sometimes called in the trade a collection account. A collection agent or original creditor can telephone or send letters demanding the debtor pay the deficiency balance.
If the original creditor or collection agent has the right under state law to collect the deficiency balance, the creditor or collection agent may choose to sue the debtor under a breach of contract theory. If the original creditor or collection agent wins, then it has a judgment. It can use the judgment to collect the amount of the deficiency balance plus costs to garnish the judgment-debtor's wages, levy accounts, or place a lien on the judgment-debtor's personal or real property.
If the judgment-debtor now resides in another state, the judgment-creditor can take the local judgment to the judgment-debtor's new state of residence and ask a local court to enforce the judgment. This is called domesticating a judgment in the law world. The local court will use its state laws for wage garnishment, account levy, and lien.
You asked if it is likely that a creditor in Washington will attempt to obtain a judgment for the deficiency balance. It has the legal right to because Washington protects its residents with a weak anti-deficiency law. Will it go to the bother of suing you to obtain a judgment? That is an economics question. If the deficiency is a small amount, it would economically foolish for it to do so. If the deficiency is in the six figures, then it would be economically foolish for it not to try.
If it goes to the expense of obtaining the judgment, it may not domesticate the judgment due to the cost. However, it may figure, "In for a penny, in for a pound."
In my observations, most deficiency balances are not litigated and become judgments because the original creditor usually has a clear window into the defendant's finances due to earlier mortgage modification negotiations. A debtor who allows a foreclosure is, customarily, not in a strong financial position. However, that does not mean no deficiency balances are litigated, or that yours will not be.
If the judgment-creditor domesticates the Washington judgment in South Carolina, the South Carolina Court will use South Carolina's collection laws. South Carolina does not allow wage garnishment of its residents for consumer debt, but does allow account levy and liens.
To learn more about your state’s laws regarding the enforcement of judgments, I encourage you to visit the Bills.com State Consumer Protection Laws and Exemptions page.
As I mentioned at the top of this answer, consult with an attorney licensed in your state to learn how a possible judgment will affect you, based on your individual circumstances.
I hope this information helps you Find. Learn & Save.
Struggling with debt?
Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q2 2022 was $16.15 trillion. Housing debt totaled $11.71 trillion and non-housing debt was $4.45 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1.739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Each state has its rate of delinquency and share of debts in collections. For example, in Hawaii credit card delinquency rate was 2%, and the median credit card debt was $472.
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