In Minnesota, if you go through a foreclosure and the sale price isn't enough to cover the balance of your mortgage debt, in most cases, your lender can't 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 Minnesota. (For more articles on Minnesota foreclosure law and Minnesota programs designed to help homeowners avoid foreclosure, visit our Minnesota Foreclosure Law Center.)
In a foreclosure, the total debt that the borrowers owe 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—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 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.)
Most foreclosures in Minnesota are nonjudicial, which means the lender does not have to go through state court to foreclose. However, sometimes foreclosures in Minnesota are judicial, where the lender forecloses through the state court system. (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?)
Deficiency judgments are generally not allowed after nonjudicial foreclosures. A deficiency judgment is not allowed if a mortgage is foreclosed nonjudicially and has:
Deficiency judgments are allowed in judicial foreclosures. If a lender forecloses judicially, then a deficiency judgment is possible.
But because most homeowners in Minnesota are foreclosed nonjudicially and get a six-month or five-week redemption period, a deficiency judgment is usually not an issue.
To read the statutes governing Minnesota foreclosures, go to www.leg.state.mn.us. Click on “Table of Statutes Chapters” and look in Chapter 580 (“Mortgages; Foreclosure by Advertisement”), Chapter 581 (“Mortgages; Foreclosure by Action”), and Chapter 582 (“Mortgages; Foreclosure, General Provisions.”) The statute governing deficiency judgments is Minn. Stat § 582.30.
If you’re facing a foreclosure in Minnesota, 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.