Deficiency Judgments After Foreclosure in Oklahoma

Can your lender get a deficiency judgment against you after a foreclosure in Oklahoma?

If you go through a foreclosure in Oklahoma, the foreclosure sale could result in a deficiency. (When the foreclosure sale price doesn't cover the balance of the borrower's mortgage debt, the difference between the total debt and the sale price is called a "deficiency.")

In most states, 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. Generally, Oklahoma law permits deficiency judgments, but not under certain circumstances.

Most foreclosures in Oklahoma are judicial and go through the state court system. Nonjudicial foreclosures, where the lender does not have to go to court, are also allowed in Oklahoma; but, you can force the lender to foreclose judicially by taking specific steps at least ten days before the foreclosure sale. While you get the right to opt for a judicial foreclosure if the lender initiates a nonjudicial one, you can prevent the lender from getting a deficiency judgment if you:

  • let a nonjudicial foreclosure proceed and
  • give timely notice to the lender at least ten days before the sale that the property is your homestead and that you elect against a deficiency judgment.

But converting a nonjudicial foreclosure to a judicial one might be a good idea, especially if you have a defense to the foreclosure.

How Foreclosure Sales Work

If you default on your mortgage loan, the lender can go through a specific legal process called "foreclosure" to sell your home to repay the outstanding debt. After the lender fulfills all of the legal requirements for foreclosure, the final step in a judicial or nonjudicial foreclosure is the foreclosure sale, where the home is sold to a new owner at a public auction.

The foreclosing lender submits a bid at the sale, which is a "credit bid." With a credit bid, the lender gets a credit in the amount of the borrower's debt. The lender can bid up to the total amount of the debt, including foreclosure fees and costs, or it might bid less. Most of the time, the lender makes the highest bid at the sale and becomes the new owner of the property because no one else bids. If the lender buys the property at the sale and gets title to the home, the property is considered "real estate owned" (REO).

Lenders regularly bid less than the total amount of a borrower's mortgage debt at foreclosure sales.

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

When the lender gains ownership of a property through the foreclosure process, and if state law allows it, the lender can seek a personal judgment against the borrower to recover the deficiency, if there is one. This kind of money judgment is called a "deficiency judgment." In some states, the lender may ask for a deficiency judgment as part of a judicial foreclosure process. In other states, the lender has to file a separate lawsuit against the borrower after the foreclosure to get a deficiency judgment.

But if the sale price is equal to, or more than, the mortgage debt amount, you're off the hook because no deficiency exists—even if the lender can't resell the property for the same amount after the foreclosure sale. In fact, if the sale results in excess proceeds, you might be entitled to that extra money following the foreclosure auction. But, if any junior liens were on the home, like a second mortgage or HELOC, or if a creditor recorded a judgment lien against the property, those parties get the funds to satisfy the amount they're owed. Then, any proceeds left over after paying off these liens belong to the foreclosed homeowner.

State Law Sometimes Limits Deficiency Judgments

State law sometimes imposes limits on deficiency judgments. Some states restrict deficiency judgment amounts, such as by requiring that the borrower get credit for the home's fair market value if the foreclosure sale price is less. That is, the property's fair market value is substituted for the foreclosure sale price when calculating the deficiency amount.

Other states limit set time limits for how long lenders get to seek a deficiency judgment against a borrower, typically ranging from three months to one year after the foreclosure sale. (To find out the time limit in your state, talk to a foreclosure lawyer.) Also, various states require specific procedural requirements to get a deficiency judgment, while some states don't allow deficiency judgments in certain circumstances, like after nonjudicial foreclosures.

How Lenders Collect Deficiency Judgments

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

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.

Will My Lender Sue Me for a Deficiency Judgment?

Even if your lender has the right under state law to go after you for a deficiency judgment, it might decide not to do so—especially if you don't have many assets to satisfy the judgment. The lender might decide it isn't worth the expense and effort of getting a deficiency judgment.

Still, you should know whether your lender can potentially pursue you for a deficiency after a foreclosure. Also, even if the lender decides not to sue you for a deficiency judgment, it could later sell the debt to a debt buyer who might file a lawsuit against you for the deficiency later on.

Deficiency Judgments After Oklahoma Judicial Foreclosures

In Oklahoma, the lender may obtain a deficiency judgment in a judicial foreclosure, but it must request the deficiency judgment:

  • when making a motion for an order confirming the foreclosure sale or
  • within 90 days after the foreclosure sale. (Okla. Stat. tit. 12, § 686).

The deficiency judgment is limited by the property's market value on the sale date. (Okla. Stat. tit. 12, § 686).

Deficiency Judgments After Oklahoma Nonjudicial Foreclosures

Deficiency judgments are also allowed following nonjudicial foreclosures in Oklahoma, but not for homestead properties if you invoke your rights.

Preventing a Deficiency Judgment

The lender may initiate an action to get a deficiency judgment within 90 days of a nonjudicial foreclosure sale. But the lender can't get a deficiency judgment if the borrower sends written notice to the lender by certified mail at least ten days before the foreclosure sale that the property is the borrower's homestead (as defined in the Oklahoma Constitution) and that the borrower elects against a deficiency judgment. (Okla. Stat. tit. 46, § 43(A)(2)(c)).

So, one benefit to letting a nonjudicial foreclosure go forward is that you can prevent a deficiency judgment. Again, converting a nonjudicial foreclosure to a judicial one is often a good idea, especially if you have a defense to the foreclosure. Talk to a lawyer to learn whether you should consider converting a nonjudicial foreclosure into a judicial one and get information relevant to your particular situation.

Limitation on Deficiency Amount

If the lender does get a deficiency judgment, the court can limit the maximum amount to the lesser of:

  • the difference between the total debt—including the amount of the indebtedness, interest, attorneys' fees, as well as the costs and expenses of sale—and the property's fair market value, or
  • the difference between the total mortgage debt and the foreclosure sale price. (Okla. Stat. tit. 46, § 43(A)(2)(d)).

What Happens to Second Mortgages, HELOCs, and Other Junior Liens?

Generally, when a senior lienholder forecloses, any junior liens—like second mortgages and HELOCs, among others—are also foreclosed, and those junior lienholders lose their security interest in the real estate. In this situation, junior lienholders are sometimes called "sold-out junior lienholders." But that doesn't mean you're off the hook for the money you still owe to junior lienholders.

Suppose a junior lienholder, like a second mortgage lender, is sold out in this manner, and the foreclosure sale proceeds weren't sufficient to pay what you owe to that junior lienholder. In that case, the second mortgage lender could sue you personally on the loan's promissory note. So, if the equity in your home doesn't cover second and third mortgages, for example, you might face lawsuits from those lenders to collect the balance of those loans.

Getting Foreclosure Help in Oklahoma

If you have questions about Oklahoma's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney.

It's also a good idea to talk to a HUD-approved housing counselor if you want to learn 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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