In Georgia, if you go through foreclosure and the sale price is not enough to cover the balance of your mortgage, your lender can come after you for the "deficiency." However, in order to do so, the lender must follow certain procedures.
Read on to learn what a deficiency judgment is, when your mortgage lender can collect one against you in Georgia, and what happens to the deficiency in a short sale or a deed in lieu of foreclosure in Georgia.
When a lender forecloses on a mortgage, the total debt owed by the borrower to the lender frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a “deficiency.”
Example. Say the total debt owed is $200,000, but the home only sells for $150,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount (in our example, $50,000) from the borrower by doing such things as garnishing the borrower’s wages or levying the borrower’s bank account. (Learn about methods that creditors can use to collect judgments.)
(To learn more about deficiency judgments in the foreclosure context, see our Deficiency Judgments After Foreclosure area.)
Most foreclosures in Georgia are nonjudicial, which means the lender does not have to go through state court to get one. (In judicial states, the lender must foreclose through the state court system.) To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)
In Georgia, the lender may obtain a deficiency judgment against the borrower following foreclosure. However, in order to get a deficiency judgment, the lender must follow certain procedures.
Lender must file a report of sale. To be eligible for a deficiency judgment, the lender must file a report of sale with the superior court of the county in which the land is located within 30 days after the nonjudicial foreclosure sale (Ga. Code Ann. § 44-14-161[a]). If this deadline is missed, then the lender cannot get a deficiency judgment.
The court will hold a hearing before it confirms the sale. The lender must serve the borrower with notice of the hearing at least five days prior to the hearing date (Ga. Code Ann. § 44-14-161[c]). Here's what the court will do at the hearing:
The sale price must be at least fair market value. The foreclosure sale price must be at least as much as the fair market value of the property (Ga. Code Ann. § 44-14-161[b]). The court will check on this during the hearing.
The court will review foreclosure procedures. At the hearing to confirm the sale, the court will evaluate whether or not the lender followed proper foreclosure procedures. In doing so, the court will look at:
If the sale is confirmed, the lender can file suit for a deficiency judgment against the borrower. If the sale was not proper, the court may order a resale of the property.
Generally, when a senior lienholder forecloses, any junior liens (these would include second mortgages and HELOCs, among others) are also foreclosed and those junior lienholders lose their security interest in the real estate. If a junior lienholder has been sold-out in this manner, that junior lienholder can sue you personally on the promissory note. This means that if the equity in your home doesn’t cover second and third mortgages, you may face lawsuits from those lenders to collect the balance of the loans.
Learn more in our article What Happens to Liens and Second Mortgages in Foreclosure?
A short sale is when you sell your home for less than the total debt balance remaining on your mortgage and the proceeds of the sale pay off a portion of the mortgage balance. (Learn more about short sales to avoid foreclosure.)
There is no Georgia law that says a lender cannot get a deficiency judgment following a short sale. To avoid a deficiency judgment, the short sale agreement must expressly state that the lender waives its right to the deficiency. If the short sale agreement does not contain this waiver, the lender may file a lawsuit to obtain a deficiency judgment.
A deed in lieu of foreclosure occurs when a lender agrees to accept a deed to the property instead of foreclosing in order to obtain title. With a deed in lieu of foreclosure, the deficiency amount is the difference between the fair market value of the property and the total debt. (Learn more about deeds in lieu of foreclosure.)
Deeds in lieu of foreclosure are available in Georgia, but debtors usually don't have enough time to complete one because of the short time frame for a nonjudicial foreclosure. In Georgia, a foreclosure could be completed in as little as 37 days, which includes three days for foreclosure referral and 34 days for the lender to publish the sale (publishing the sale once a week for four consecutive weeks).
Generally, the process takes around 50-90 days, though this too may not allow enough time to complete a deed in lieu of foreclosure. If you do manage to complete a deed in lieu of foreclosure, the lender still might be able to get a deficiency against you. This is because Georgia does not have a law that prevents the lender from obtaining a deficiency judgment following the transaction.
To avoid a deficiency judgment with a deed in lieu of foreclosure, the agreement must expressly state that the transaction is in full satisfaction of the debt. If the deed in lieu of foreclosure agreement does not contain this provision, the lender may file a lawsuit to obtain a deficiency judgment against you.
The statutes governing Georgia foreclosures can be found in the Official Code of Georgia in Title 44, Chapter 14 at http://georgiainfo.galileo.usg.edu/legchart/gacode.htm.