In Vermont, 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." Read on to learn what a deficiency judgment is, when your mortgage lender can collect one against you in Vermont, and what happens to the deficiency in a short sale or a deed in lieu of foreclosure in Vermont.
(For more articles on foreclosure in Vermont, visit our Vermont Foreclosure Law Center.)
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.)
Most foreclosures in Vermont are either by strict foreclosure or judicial sale, where the lender has to go through state court.
Learn more about the Vermont foreclosure process.
Deficiency judgments are allowed in strict foreclosures. The lender may seek a deficiency judgment (which is limited by the fair market value of the property) in a separate lawsuit.
Deficiency judgments are also allowed in foreclosures by judicial sale. The lender must request the deficiency judgment in its initial complaint. If the lender is the purchaser at the foreclosure sale, then the amount of the deficiency will be limited to the difference between the fair market value of the property and the total amount of the debt, plus expenses (Vt. R. Civ. P. 80.1).
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 Vermont, 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.
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 Vermont, 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.
You can access the rule governing Vermont deficiency judgments by going to www.lexisnexis.com/hottopics/vtstatutesconstctrules. Select “Rules of Civil Procedure” and look in “XI. Special Rules for Certain Actions” and “Rule 80.1 (Foreclosure of Mortgages and Judgment Liens).”