How Do Mortgage Lenders Collect Deficiency Judgments?

Once a mortgage lender gets a deficiency judgment against you, it can then collect on that judgment.

Once a mortgage lender gets a deficiency judgment against you, it can then collect on that judgment. If the creditor was a second lien holder in the foreclosure, it's more likely they'll pursue collection efforts, especially if they received little or nothing from the foreclosure sale.

The main ways a mortgage lender can collect a deficiency judgment (described in more detail below) are through judgment liens, wage garnishments, and bank account levies.

Judgment Liens

The mortgage lender can get a judgment lien against your personal property and other real estate that you own within the county, giving it a security interest in that property. Then the lender can foreclose on that other real estate. Lenders tend to foreclose if you have equity, and the lender thinks it'll get enough money to make the effort worthwhile. Even if you own real estate in another county, the mortgage creditor can transfer the judgment to the county where the real property is located.

With a deficiency judgment lien, the creditor also has an interest in any personal property that you owned at the time it filed the lien—like jewelry, equipment, business assets, art, antiques, electronics, and any other valuables—subject to any available exemptions you might have.

Wage Garnishments

Just like any other lien creditor, the mortgage creditor can take part of your employment income, often called "garnishing" your wages. If the creditor knows where you work, it might go the garnishment route.

Federal law and state law limits how much money can be garnished from your income; you're entitled to exempt some of your personal income. Under federal law, creditors can usually only garnish up to 25% of your take-home pay (less for low-income wage earners). Some states have more stringent rules.

Bank Account Levies

The mortgage creditor might also attempt to levy your bank accounts. Levying an account could be relatively easy if you had previously paid the lender with checks drawn on an open bank account. As with your other assets, you might be entitled to exempt a portion, if not all, of the funds in your account.

Will the Lender Try to Collect the Deficiency?

Just because a mortgage creditor has a deficiency judgment doesn't mean it will try to collect the money from you. Many creditors find that it's just not worth the cost and expense to pursue collection, and instead write-off the debt and issue you a form 1099-C. If the creditor forgives some or all of the deficiency, you might owe taxes on the forgiven amount.

If the Lender Does Try to Collect

If the creditor thinks that the debt is collectible—for example, because you have steady income or assets—it might take further collection action on the deficiency judgment. If you can't successfully protect yourself and your assets using defenses and exemptions specific to wage garnishment, levies, attachment, or foreclosure, consider filing bankruptcy. If bankruptcy isn't an option for you, you might be able to work out a payment agreement with the creditor.

Vacating Default Deficiency Judgments

If the creditor got a default judgment against you and you were unaware of the deficiency case or were unable to defend yourself, you might be able to get the court to vacate (remove) or modify (change) the deficiency judgment. You must act quickly and have acceptable legal and factual reasons for this request. For example, the creditor waited too long to take a deficiency judgment and violated the statute of limitations, which is often shortened in mortgage deficiency actions. Because this procedure can be complicated and difficult, you should consult with a local attorney or legal aid office immediately if you want to vacate or modify a deficiency judgment.

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