If you lose your home through foreclosure, and the foreclosure sale price is less than the amount you owe on the mortgage, the difference is called the "deficiency." In Hawaii, whether the foreclosing lender can come after you to collect the deficiency depends on whether the foreclosure was conducted judicially or nonjudicially -- deficiency judgments are allowed in judicial foreclosures but not in most residential nonjudicial foreclosures.
Read on to learn what a deficiency judgment is, when your mortgage lender can collect one against you in Hawaii, and what happens to the deficiency in a short sale or a deed in lieu of foreclosure in Hawaii.
(For more articles on foreclosure in Hawaii, visit our Hawaii Foreclosure Law Center.)
What Is a Deficiency After Foreclosure?
When a lender forecloses on a mortgage, the total debt owed by the borrowers 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 borrowers by doing such things as garnishing the borrowers’ wages or levying the borrowers’ 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.)
Hawaii Deficiency Judgments
In the past, most foreclosures in Hawaii were nonjudicial. Then, in 2011 the state implemented a foreclosure mediation program that applied to nonjudicial foreclosures, which resulted in lenders filing most new foreclosures in court so they could bypass the program. (For more information on Hawaii’s mediation program, see Hawaii's Mortgage Foreclosure Dispute Resolution Program.) As a result, most foreclosures in the state are now judicial.
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?
Learn more about the Hawaii foreclosure process.
Judicial foreclosures. In Hawaii, deficiency judgments are allowed in judicial foreclosures.
Nonjudicial foreclosures. If the lender pursues a nonjudicial foreclosure and the property is residential and owner-occupied, then the lender cannot get a deficiency. There is one exception: If the home loan is secured by property other than the home, then the lender can seek a deficiency. (Haw. Rev. Stat. § 667-38).
Can Lenders of Second Mortgages, HELOCs, and Other Junior Liens Collect From You?
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 mortgage holder has been sold-out in this manner, that junior mortgage holder 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?
Deficiency After a Short Sale in Hawaii
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.)
In Hawaii, a lender can 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.
Deficiency After a Deed in Lieu of Foreclosure in Hawaii
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.)
In Hawaii, a lender can get a deficiency judgment following a deed in lieu of foreclosure. 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.
Hawaii Foreclosure Law
To find the laws that govern Hawaii foreclosures, go to the Hawaii State Legislature’s webpage at www.capitol.hawaii.gov. Click on “Table of Contents” under the area labeled “Hawaii Revised Statutes.” Look in Chapter 667.