Deficiency Judgments After Foreclosure in New York

In New York, if your home sells for less than you owe on the mortgage loan, you might have to pay the lender the difference, which is called a "deficiency." Read on to learn what a "deficiency judgment" is and when your lender can collect one against you in New York.

What Is a Deficiency After Foreclosure?

In a foreclosure, the total debt the borrower owes to the lender 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 $400,000, but the home sells for $350,000 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, for instance, garnishing the borrowers’ wages or levying the borrowers’ bank account.

New York Deficiency Judgments

Foreclosures in New York are judicial, which means the lender has to go through state court to foreclose. (In a nonjudicial foreclosure, the lender can foreclose without going to court. 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 Allowed

In New York, the lender may obtain a deficiency judgment against the borrower. (N.Y. Real Prop. Act. Law § 1371).

Limitation on New York Deficiency Judgments

The deficiency is limited by the fair market value of the property, which is determined by the court. (N.Y. Real Prop. Act. Law § 1371[2]).

Example: If the total debt is $400,000 and the lender bids $350,000 at the foreclosure sale and purchases the property, the deficiency is $50,000. Generally, this means the lender could get a deficiency judgment for $50,000 and then collect that amount from the borrower. However, if the court determines that the fair market value of the property is really $375,000, the lender could only obtain a deficiency judgment in the amount of $25,000.

So, the amount of the deficiency is the amount of the debt less the higher of:

• the fair market value or
• the sales price.

Time Limit to Request a Deficiency Judgment

The lender must submit a request for a deficiency judgment within 90 days after consummation of the foreclosure sale. (The sale is consummated when the deed is delivered to the purchaser.) The request for a deficiency judgment is made simultaneously with the filing of a motion for an order confirming the sale. (N.Y. Real Prop. Act. Law § 1371[2]).

In-Hand Service Is Required

A lender may only obtain a deficiency judgment if the complaint is personally served on the borrower or if the borrower enters an appearance in the foreclosure action. (N.Y. Real Prop. Act. Law § 1371[1]).

How to Find New York's Foreclosure Laws

The statutes governing foreclosures in New York can be found in Real Property Actions and Proceedings, Article 13, §§ 1301 to 1391. To read New York's deficiency judgment laws for yourself, go to http://public.leginfo.state.ny.us, hover over "Laws," and then click on “Laws of New York.”

To get an overview about foreclosure in New York, see our Summary of New York's Foreclosure Laws. For a detailed description of the foreclosure process in New York, see New York Foreclosure Laws and Procedures.

Talk to a Lawyer

If you’re facing a foreclosure, 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 can tell you if you have any defenses to the foreclosure. If you can’t afford to hire a lawyer, consider speaking with a HUD-approved housing counselor.