Deficiency Judgment Laws in Indiana

In Indiana, a foreclosing lender has the right to get a deficiency judgment against you. But it might have an incentive not to do so.

By , Attorney · University of Denver Sturm College of Law

If you go through a foreclosure in Indiana, the foreclosure auction could result in a deficiency. In most states, including Indiana, if a foreclosure sale results in a deficiency, the lender may get a deficiency judgment (a personal judgment) against the borrower for the deficiency amount.

However, in Indiana, the lender might be incentivized not to do so because waiving the right to a deficiency judgment can result in a faster foreclosure process.

What Is a Deficiency in an Indiana Foreclosure?

When a lender forecloses but the foreclosure sale price doesn't bring in enough to repay the borrower's mortgage loan, the difference between the total debt and the sale price is called a "deficiency." For example, if your total debt is $500,000, but the home sells to the highest bidder at a foreclosure sale for $450,000, the deficiency is $50,000.

What Is a "Deficiency Judgment" After a Foreclosure Sale?

State law sometimes allows the lender to seek a personal judgment against the borrower to recover a deficiency after a foreclosure. This kind of money judgment is called a "deficiency judgment."

Depending on state law, the lender might be able to get a deficiency judgment as part of a judicial foreclosure process. However, some states require the lender to file a separate lawsuit against the borrower following a foreclosure to get a deficiency judgment.

Do Foreclosures Always Result in a Deficiency?

If the sale price is equal to, or more than, the mortgage debt amount, no deficiency exists. In fact, if the sale results in excess proceeds (over and above what's needed to pay off any other liens, like a second mortgage or HELOC), you might be entitled to that extra money following the foreclosure auction.

How Lenders Collect Deficiency Judgments

Generally, after the lender receives a deficiency judgment, it can collect this amount (in the example above, $50,000) from the borrower using typical collection methods, like garnishing wages or levying a bank account.

Can You Avoid a Deficiency Judgment in Indiana?

Even if your lender gets a deficiency judgment, you can probably eliminate your liability for a deficiency judgment, like many other dischargeable debts, in a Chapter 7 or Chapter 13 bankruptcy. Or you might be able to raise a defense to the deficiency, such as state law prohibits one.

What Happens in an Indiana Foreclosure

Foreclosures in Indiana are judicial, which means the lender must foreclose through the state court system. A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale.

Can the Lender Get a Deficiency in an Indiana Foreclosure?

The lender may generally seek a deficiency judgment against the borrower in an Indiana foreclosure, but not if the borrower waives the waiting period (in writing) and the lender agrees. (Ind. Code § 32-29-7-5, § 32-30-10-7.)

What Is the Waiting Period in an Indiana Foreclosure?

In Indiana, a waiting period is required between when the lender files the foreclosure lawsuit and the foreclosure sale. The waiting period is three months if the borrower signed the mortgage on or after July 1, 1975. (Ind. Code § 32-29-7-3.) After the waiting period ends, if the lender prevails in the suit, the court will enter a judgment of foreclosure, and the property is sold at an auction.

So, if you agree to give up the waiting period, you'll avoid a deficiency judgment, but you'll lose your home faster.

How to Calculate the Amount of a Deficiency Judgment in Indiana

For example, suppose you owe $500,000 to the lender, and you lose your property to a foreclosure sale. At the sale, the lender is the high bidder with a credit bid of $450,000 and becomes the property's new owner. As in the example above, the deficiency is $50,000.

But if you and the lender previously agreed to forgo the waiting period, then the lender can't get a deficiency judgment against you for the $50,000 shortfall.

Getting Foreclosure Help in Indiana

For answers to questions about Indiana's foreclosure process or information about potential defenses to a foreclosure, consider talking to a foreclosure attorney.

Also, it's also a good idea to talk to a HUD-approved housing counselor about different loss mitigation options. You can use the Consumer Financial Protection Bureau's Find a Counselor tool to get a list of HUD-approved housing counseling agencies in your area. You can also call the Homeownership Preservation Foundation (HOPE) Hotline, which is open 24 hours a day, seven days a week, at 888-995-HOPE (4673).

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