In Georgia, if you go through foreclosure, but the sale price is not enough to cover the balance of your mortgage, your lender can come after you for the "deficiency." To do so, however, the lender must follow certain procedures.
Read on to learn what a deficiency judgment is, when your 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 sells for $150,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the lender can seek a personal judgment (called a "deficiency 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.
Most foreclosures in Georgia are nonjudicial, which means the lender does not have to go through state court to foreclose. (In a judicial foreclosure, the lender files a lawsuit in state court to foreclose. 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 the judgment, the lender has to follow certain procedures.
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 can't get a deficiency judgment.
The court will hold a hearing to confirm 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)). At the hearing, the court will review a few specific aspects of the foreclosure.
The court will check to see if the sale price was 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 review the 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 might face lawsuits from those lenders to collect the balance of the loans. (Learn more in 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 can't 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.)
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.
If you need help understanding Georgia's foreclosure laws, want to fight the foreclosure, or have questions about a potential deficiency judgment, consider contacting a local foreclosure attorney.
Homeowners facing foreclosure are also encouraged to contact a HUD-approved housing counselor to discuss various ways to avoid a foreclosure.