In Washington, if the foreclosure sale price is less than the amount you owe on the mortgage, the foreclosing lender can't come after you for the difference (called the "deficiency") after a nonjudicial foreclosure. However, deficiency judgments are allowed with judicial foreclosures and lenders on second mortgages and HELOCs might be able to sue you in some circumstances.
When a lender forecloses, the total debt owed by the borrowers to the lender frequently 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 $500,000, but the home sells for $450,000 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 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 residential foreclosures in Washington are nonjudicial, which means the lender does not have to go through state court to foreclose. (Sometimes Washington foreclosures are judicial and go 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 not allowed after nonjudicial foreclosures. In Washington, deficiency judgments are not allowed following nonjudicial foreclosures. (Wash. Rev. Code § 61.24.100).
Deficiency judgments are allowed in judicial foreclosures. If the lender pursues a judicial foreclosure, a deficiency judgment is permitted. (Wash. Rev. Code § 61.12.070).
Generally, when a senior lienholder forecloses, any junior liens—these would include second mortgages and HELOCs, among others—are also foreclosed and those junior lienholders lose their security interest in the real estate. If a junior lienholder has been sold-out in this manner, that junior lienholder can sue you personally on the promissory note. This means that if the equity in your home doesn’t cover second and third mortgages, you might face lawsuits from those lenders to collect the balance of the loans. (Learn more in our article What Happens to Liens and Second Mortgages in Foreclosure?)
To find the Washington statutes, go to the Washington State Legislature’s webpage at http://apps.leg.wa.gov/rcw. The foreclosure statutes can be found in Title 61.
If you’re a homeowner in Washington who’s facing a foreclosure and want information about possible defenses or ways avoid a foreclosure, consider talking to a local foreclosure lawyer. If you can’t afford a lawyer, consider talking to a HUD-approved housing counselor.