The short answer is yes. In any mortgage, the debtor is the mortgagor, and the creditor is the mortgagee. If a mortgagee forecloses on your property, the mortgagee has to sell the property at a foreclosure sale. If, after the foreclosure sale, the mortgagee still has not recovered the amount of money you owe them, the mortgagee may pursue a deficiency judgment. The law on deficiency judgments is found here.
This article only discusses lawsuits for deficiencies after a mortgage foreclosure. To read about how to fight a foreclosure itself, read my blog post, "How to Fight Your Foreclosure in Court."
· After foreclosure, a mortgage company may sue you for the deficiency.
· But a mortgage company may not sue you for the deficiency if you have a power of sale mortgage, and the property is your homestead, and you elect against a deficiency judgment.
· In any lawsuit for the deficiency, you have important rights. This post will explain what your rights are if a mortgagee sues you or a deficiency judgment.
To obtain a deficiency judgment, the mortgagee must file, in court, a motion for leave to enter a post-judgment deficiency order. The mortgagee must file this motion within 90 days after the sale. The mortgagee must send notice of this motion to you, or to your attorney if you have one. The court will then set a hearing on the mortgagee’s motion for a post-judgment deficiency order.
At the hearing, you will be allowed to appear and present evidence before the judge as to how much the deficiency is. The judge will then determine the amount of the deficiency.
The state law requires the judge to determine the amount of the deficiency by calculating:
Amount you owe the mortgagee + interest + foreclosure action costs + amount you owe on all prior liens and encumbrances – market value of the property or sales price of the property (whichever is higher).
After the judge determines the deficiency, the mortgagee will be allowed to initiate collection proceedings to enforce the judgment. In collection proceedings, the mortgagee will be allowed to seize your assets, garnish your wages, and use any other remedy available in the law. The judge may also order a payment plan.
If you disagree with the way the judge has calculated the deficiency, you may appeal the judge’s ruling to a higher court. Click here to read about the appeals process.
If the mortgagee does not file a motion to enter a post-judgment deficiency order in the way the statute requires, then the mortgagee may not pursue any lawsuit against you to recover the deficiency.
Exception to the rule on deficiency judgment
There is an exception to the rule that allows a mortgagee to seek a deficiency judgment: If the mortgage is a “power of sale” mortgage, and the property is your homestead, then the mortgagee may not seek a deficiency judgment if you elect against a deficiency judgment.
What is a power of sale mortgage?
A power of sale mortgage is a mortgage where, in the mortgage contract, there is a language that allows the mortgagee to foreclose on the property without going to court if the debt is not paid. For there to be a power of sale mortgage, there must be bold and underlined language in the mortgage that reads,
"A power of sale has been granted in this mortgage. A power of sale may allow the mortgagee to take the mortgaged property and sell it without going to court in a foreclosure action upon default by the mortgagor under this mortgage."
Look at your mortgage. If you don’t see this language in bold and underlined language, you don’t have a power of sale mortgage.
What is a homestead?
The homestead is the property that is used for residential purposes of the owner. If the homestead is outside of the city limits, the homestead may not be more than 160 acres. If the homestead is inside the city limits, the homestead may not be more than one acre. If the homestead was outside of the city limits, but the city annexed the property after November 1, 1997, the homestead may not be more than 160 acres. Click here to see the section in the Oklahoma Constitution, that defines “homestead.”
How to avoid a deficiency judgment on your homestead in a power of sale mortgage
If you have received notice that your homestead is to be sold under power of sale, then you must send written notice to the mortgagee by certified mail, saying that the property is your homestead and that you elect against a deficiency judgment. You must send this notice at least ten days before the date of the sale. (When the mortgagee sends you the notice that your property is to be sold, this statute requires that the notice advise you that you may avoid a deficiency judgment.)
If you send notice to the mortgagee that you elect against a deficiency judgment, then, the mortgagee may not obtain a deficiency judgment. However, if the mortgagee does not believe that the property is really your homestead, the mortgagee may file an action in court, and ask a judge to rule that the property is not your homestead. If the judge rules that the property is not your homestead, then, the mortgagee may seek a deficiency judgment against you. In this lawsuit, the loser will have to pay the winner’s attorney’s fees.
Click here to read the statute on avoiding a deficiency judgment on your homestead in a power of sale mortgage.
The law allows a mortgagee to collect a deficiency judgment against you after foreclosure. However, the same law also gives you important rights to protect yourself. If you have been sued in foreclosure proceedings, and you have questions about your legal rights, the Persaud Law Office may be able to help you. Contact us today.
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