In Alabama, if you go through foreclosure and the sale price isn't enough to cover the balance of your mortgage debt, the foreclosing party (the "lender") can come after you for the deficiency. Read on to learn what a deficiency judgment is and when your mortgage lender can collect one against you in Alabama. (To learn what to do—and what not do—if you’re facing a foreclosure, see Foreclosure Do's and Don'ts.)
When a lender forecloses, the total debt the borrower owes sometimes 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 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.)
Most foreclosures in Alabama are nonjudicial, which means the lender does not have to go through state court to foreclose. 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 The Difference Between a Judicial and Nonjudicial Foreclosure.)
In Alabama, the lender may obtain a deficiency judgment against the borrower by filing a lawsuit after the nonjudicial foreclosure.
Alabama law doesn't have any significant restrictions on deficiency judgments, but lenders owe borrowers a duty of fairness and good faith in coming up with their bid at the foreclosure sale. This means that lenders can’t make an unreasonably low bid—one that is shockingly less than the fair market value of the property—for the purpose of pursuing a large deficiency judgment against the borrower.
The statutes governing Alabama nonjudicial foreclosures can be found in the Alabama Code Title 35, Chapter 10, § 35-10-11, et seq. To find the Alabama Code, go to the Alabama Legislature website. Click on "Resources" and then "Code of Alabama."
If you’re facing a foreclosure in Alabama, consider talking to a local foreclosure attorney. A foreclosure attorney can explain different options that might be available to prevent a foreclosure, like a loan modification, forbearance agreement, or repayment plan and let you know if you have any potential defenses to the foreclosure.
If you can’t afford to hire a lawyer, a HUD-approved housing counselor is a good resource for information about different ways to avoid foreclosure.