In New Mexico, 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" if the foreclosure is judicial. The lender can also obtain a deficiency judgment following a nonjudicial foreclosure, but not against a low-income household.
Read on to learn what a deficiency judgment is, when your mortgage lender can collect one against you in New Mexico and when it cannot, and what happens to the deficiency in a short sale or a deed in lieu of foreclosure in New Mexico.
(For more articles on foreclosure in New Mexico, visit our New Mexico 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.)
New Mexico Deficiency Judgments
Foreclosures in New Mexico are typically judicial, which means the lender has to go through state court to get one. The lender initiates the foreclosure by filing a complaint with the court. The complaint is served to the homeowner, along with a summons.
New Mexico foreclosure can also be nonjudicial since the state's Deed of Trust Act was amended in 2006 to remove the prohibition on powers of sale in residential deeds of trust. (Learn more about power of sale clauses in our article What is a Power of Sale Foreclosure?) As a result, a nonjudicial foreclosure process may be used for post-2006 residential loans, though the practice is not widespread.
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 New Mexico foreclosure process.
Deficiency Judgments in Judicial Foreclosures
In New Mexico, the lender may obtain a deficiency judgment in a judicial foreclosure, but the property cannot be sold for less than two-thirds of its appraised value at the foreclosure sale (New Mexico Stat. Ann. § 39-5-5).
Deficiency Judgments in Nonjudicial Foreclosures
The lender can also get a deficiency following a nonjudicial foreclosure. It has to initiate the lawsuit for the deficiency within six years after the date of the trustee’s foreclosure sale (New Mexico Stat. Ann. § 48-10-17(A)).
Exception for Low-Income Households
A deficiency judgment is not allowed after the nonjudicial foreclosure of a residential loan made to a low-income household. A low-income household is defined as a household in which the current annual income is at or below 80% of the area median income adjusted for family size as determined by the United States Department of Housing and Urban Development (New Mexico Stat. Ann. § (New Mexico Stat. Ann. § 48-10-17(E) and (G)(1)). The determination of whether a household is a low-income household is made as of the time the loan originated on the basis of information obtained during the loan application process (New Mexico Stat. Ann. § 48-10-17(H)).
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 New Mexico
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 New Mexico, 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 New Mexico
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 New Mexico, 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.
New Mexico Foreclosure Law
To find the New Mexico statutes, go to the State Legislature’s webpage at www.nmlegis.gov. Scroll over “Other Resources” on the left side of the screen, click on “Statutes,” and then “OK.” Next, go to the left-hand side of the screen and click on the + next to “Statutes, Rules and Const.” Then, click on the + next to “NMSA (Unannotated).” The relevant statutes governing judicial foreclosures are in Chapter 48, Article 7, §§ 48-7-1 through 48-7-24. New Mexico’s nonjudicial foreclosure statutes are located in Chapter 48, Article 10, §§ 48-10-1 through 48-10-21.