Deficiency Judgment Laws in West Virginia

In a foreclosure, the borrower's total mortgage debt sometimes exceeds the price that the home brings in at a foreclosure sale. The difference between the total debt and the sale price is called a "deficiency." For example, say the total amount you owe on your mortgage loan is $250,000. But your home sells for just $200,000 at a 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 using regular collection methods, like garnishing the borrowers' wages or levying the borrowers' bank account.

If you go through a West Virginia foreclosure, but the sale price isn't enough to cover the mortgage's balance, your lender could come after you for a deficiency judgment.

Where to Find Deficiency Judgment Laws in West Virginia

The laws that govern nonjudicial foreclosures in West Virginia, including the statute covering deficiency judgments, can be found in the West Virginia Code, §§ 38-1-3 through 38-1-15.

How Do Deficiency Judgments Work in West Virginia?

Most people who take out a loan to buy a residential property in West Virginia sign a promissory note and a deed of trust. These documents give the lender the right to foreclose if the borrower fails to make loan payments. Most foreclosures in West Virginia are nonjudicial, which means the lender doesn't have to go through state court to foreclose. (In judicial states, the lender must foreclose through the state court system.)

In West Virginia, the lender may obtain a deficiency judgment by filing a lawsuit following a nonjudicial foreclosure. (W. Va. Code § 38-1-7).

What Are the Defenses That Are Available to Borrowers Who Are Sued for a Deficiency Judgment in West Virginia?

In 2014, the Supreme Court of Appeals of West Virginia held in Sostaric v. Marshall that a borrower facing a lawsuit for a deficiency judgment could get an offset in the deficiency amount if the property's fair market value was greater than the foreclosure sale price. To get this offset, the borrower would simply raise this issue as a defense in the deficiency action (Sostaric v. Marshall, 234 W.Va. 449, Sup. Ct. of App. (November 12, 2014)).

However, Senate Bill 418, effective June 11, 2015, overturned the Sostaric decision and amended West Virginia law. Now, state law says that a defendant in a civil action seeking a deficiency judgment on a debt secured by a deed of trust may not assert a defense that the property wasn't sold for its fair market value at a foreclosure sale. (W. Va. Code § 38-1-7).

Still, you might have another defense, like you weren't properly served the lawsuit. Talk to a lawyer to learn more.

Can Lenders of Second Mortgages, HELOCs, and Other Junior Liens Collect From You?

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.

So, 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.

Deficiency Judgments After Short Sales in West Virginia

A "short sale" is when you sell your home for less than the total balance remaining on your mortgage loan. The proceeds from the sale pay off a portion of the loan.

To avoid a deficiency judgment after a short sale in West Virginia, the short sale agreement must expressly state that the lender waives its right to the deficiency. If the short sale agreement doesn't have this waiver, the lender may file a lawsuit to get a deficiency judgment.

Deficiency Judgments After Deeds in Lieu of Foreclosure in West Virginia

A "deed in lieu of foreclosure" is when a lender agrees to accept a deed to the property instead of foreclosing. With a deed in lieu of foreclosure, the deficiency amount is the difference between the borrower's total debt and the home's fair market value.

Often, a deed in lieu of foreclosure is deemed to fully satisfy the debt. But West Virginia doesn't have a law that says the lender can't get a deficiency judgment after a deed in lieu of foreclosure. So, the lender may try to hold the borrower liable for a deficiency following this kind of transaction.

To avoid a deficiency judgment with a deed in lieu of foreclosure, the agreement must expressly state that the transaction is in full satisfaction of the debt. If the deed in lieu of foreclosure agreement doesn't have this provision, the lender may file a lawsuit to get a deficiency judgment.

Can You Avoid a Deficiency Judgment in West Virginia?

If you lose your home to foreclosure and the court orders you to pay a deficiency judgment, you might be able to use bankruptcy to eliminate the debt. Or you might have a defense to the deficiency.

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Getting Foreclosure Help in West Virginia

If you have questions about West 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.