Deficiency Judgment Laws in Virginia

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

By , Attorney · University of Denver Sturm College of Law

If you go through a foreclosure in Virginia, 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." For example, say your mortgage 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.

In some states, like Virginia, if a foreclosure sale results in a deficiency, the lender may get a deficiency judgment against the borrower for the deficiency amount.

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

When permitted by state law, the lender can seek a personal judgment against the borrower to recover the deficiency after a foreclosure sale. This money judgment is called a "deficiency judgment."

How Can the Lender Get a Deficiency Judgment, Generally?

In some states, the lender requests the deficiency judgment during a judicial foreclosure. In other states, the lender files a lawsuit against the borrower after the foreclosure to get a deficiency judgment.

Are Deficiency Judgments Allowed in All Foreclosures?

Some states have anti-deficiency laws that prohibit deficiency judgments in some circumstances.

What Happens to Extra Money After a Foreclosure?

If the foreclosure sale price is equal to, or more than, the mortgage debt amount, there's no deficiency. So, in that situation, the lender isn't entitled to a deficiency judgment.

And if the sale results in excess proceeds, you might be entitled to that extra money. But, if any junior liens were on the property, like a second mortgage or HELOC, or if a creditor recorded a judgment lien against the property, those creditors get first crack at the money to repay what they're owed.

Then, any funds that are left over after paying these lienholders belong to (you) the foreclosed homeowner.

How Can the Lender Collect a Deficiency Judgment?

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

Does Virginia Allow Deficiency Judgments?

Most foreclosures in Virginia are nonjudicial, which means the lender doesn't have to go through state court to foreclose. The lender could alternatively choose to foreclose through the state court system (a "judicial foreclosure). In Virginia, most foreclosures are nonjudicial.

Virginia law permits deficiency judgments after both kinds of foreclosure.

What Are the Legal Requirements for a Deficiency Judgment in Virginia?

In Virginia, the lender can get a deficiency judgment against the borrower following a nonjudicial foreclosure by filing a lawsuit. Deficiency judgments are also permitted in judicial foreclosures.

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 (you're "judgment proof").

Can You Avoid a Deficiency Judgment in Virginia?

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 have a defense to the deficiency.

Deficiency Judgments After Short Sales in Virginia

In Virginia, a lender can get a deficiency judgment following a short sale.

Deficiency Judgments After Deeds in Lieu of Foreclosure in Virginia

With a deed in lieu of foreclosure, the deficiency amount is the difference between the total mortgage debt and the property's fair market value. Virginia doesn't have a law that says the lender can't get a deficiency judgment following this kind of transaction. So, a lender might try to hold the borrower liable for a deficiency following a deed in lieu.

Can I Avoid a Deficiency Judgment in a Short Sale or Deed in Lieu of Foreclosure in Virginia?

To avoid a deficiency judgment, the short sale or deed in lieu of foreclosure agreement must expressly state that the transaction completely satisfies the debt. If the contract doesn't contain this provision, the lender may file a lawsuit to obtain a deficiency judgment.

Again, you might have a tax liability if the debt is forgiven.

Getting Foreclosure Help in Virginia

If you have questions about Virginia'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.

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