If your home in Georgia sells at a foreclosure sale for less than you owe on your mortgage loan, you might still be on the hook to pay more money afterward. That’s because Georgia law generally allows the foreclosing bank to get a deficiency judgment for the difference between the sale price and the borrower's total debt.
In this article, you’ll learn what a deficiency judgment is, how the bank can get a deficiency judgment against you in Georgia, and what happens to the deficiency in a short sale or a deed in lieu of foreclosure.
In a foreclosure, the total debt that the borrower owes sometimes exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a “deficiency.”
Example. Say the total amount you owe on your home loan—including outstanding principal, interest, fees, and costs—is $300,000. But your home sells for just $250,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the foreclosing bank can seek a personal judgment (called a “deficiency judgment”) against the debtor to recover the deficiency. Generally, once the bank gets a deficiency judgment against you, the bank may collect this amount—in our example, $50,000—through conventional collection methods, like garnishing your wages or levying your bank account. (Learn about different ways that creditors use to collect judgments.)
Foreclosures in Georgia are usually nonjudicial, which means the bank doesn't have to go through state court to foreclose. (Judicial foreclosures, which go through court, are also allowed. But this process is not commonly used.)
In Georgia, the bank may obtain a deficiency judgment against the borrower following a nonjudicial foreclosure—but it has to take specific steps under state law.
To get a deficiency judgment, the bank 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 bank can't get a deficiency judgment.
The court will hold a hearing to confirm the sale. The bank 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 the fair market value of the property. (Ga. Code Ann. § 44-14-161(b)). Also, the court will review the foreclosure procedures. In doing so, the court will look at:
If the court confirms the sale, the bank can file a lawsuit for a deficiency judgment against the borrower. If the sale was not proper, the court can order a resale of the property. (Ga. Code Ann. § 44-14-161(c)).
A short sale is when you sell your home for less than the total debt you owe, and the proceeds of the sale pay off a portion of the balance.
In Georgia, the bank may get a deficiency judgment after a short sale. To avoid a deficiency judgment entirely, a short sale agreement must expressly state that the bank waives its right to the deficiency. If the short sale agreement doesn’t contain this waiver, the bank may file a lawsuit to get a deficiency judgment. Though, if the bank forgives the deficiency, you might have tax consequences.
A deed in lieu of foreclosure (deed in lieu) is when a bank agrees to accept a deed to the property instead of foreclosing to get the property’s title. With a deed in lieu, the deficiency amount is the difference between the total debt and the fair market value of the property.
Often, a deed in lieu is deemed to satisfy the debt fully. But Georgia doesn’t have a law that says the bank can't get a deficiency judgment following this kind of transaction. So, a bank might try to hold the borrower liable for a deficiency following a deed in lieu. To avoid a deficiency judgment, the agreement must expressly state that the transaction is in complete satisfaction of the debt. If the deed in lieu contract doesn’t contain this provision, the bank may file a lawsuit to obtain a deficiency judgment. Again, if the debt is forgiven, you might have a tax liability.
If you’re facing a foreclosure and possible deficiency judgment in Georgia, consider talking to a foreclosure lawyer. A lawyer might be able to successfully fight a deficiency judgment in court, negotiate a settlement to lower the deficiency, or help you avoid a deficiency judgment by arranging a loss mitigation option that fully satisfies your mortgage debt.
If you want more information about alternatives to foreclosure, a HUD-approved housing counselor is an excellent resource.