A deficiency suit, also referred to as a deficiency judgement, is a legal action aimed at reclaiming the shortfall between the outstanding mortgage amount and the proceeds obtained from the property’s sale following foreclosure. A deficit denotes an insufficiency of something, be it money or goods. A trade deficit arises when a nation imports more goods than it exports. Deficit spending occurs when a government exceeds its income by spending more money, often through borrowing.
A deficiency suit, also known as a deficiency judgement, is a legal action taken to recover the difference between the amount owed on a mortgage and the amount received from the sale of the foreclosed property. For instance, if a homeowner owes $200,000 on their mortgage and the foreclosed property sells for $150,000, the lender may initiate a deficiency suit to reclaim the remaining $50,000. This type of suit is commonly employed in situations where the property value has declined or the borrower has defaulted on their mortgage payments. On the other hand, a deficit refers to a situation characterized by a lack or shortage of something, such as money or resources. For example, a trade deficit arises when a country imports more goods than it exports, resulting in a negative balance of trade. This can pose economic challenges for the country. Another instance is deficit spending, which occurs when a government spends more money than it generates through taxes and other revenue sources. This can lead to a budget deficit and necessitate borrowing money to cover expenses.
A deficiency suit is a legal action taken by a lender to recover the remaining balance owed on a loan after the collateral has been sold and the proceeds are insufficient to cover the debt.
A deficiency suit can be filed when a borrower defaults on a loan secured by collateral, such as a mortgage or a car loan, and the sale of the collateral does not fully satisfy the outstanding debt.
The amount of deficiency in a deficiency suit is determined by subtracting the proceeds from the sale of the collateral from the total amount owed on the loan, including any interest, fees, and costs.
Deficiency suits are typically associated with secured loans, such as mortgages or car loans, where the collateral can be sold to recover the outstanding debt. Unsecured loans, such as credit card debts, generally do not involve deficiency suits.
Yes, a deficiency suit can be filed against a co-signer or guarantor if they have agreed to be responsible for the debt in the event of default by the borrower.
Common defences against a deficiency suit include challenging the fair market value of the collateral, disputing the amount owed on the loan, or asserting that the lender did not follow proper procedures in selling the collateral.
Filing for bankruptcy can potentially halt a deficiency suit, as it triggers an automatic stay that prevents creditors from pursuing collection actions. However, the specific circumstances and type of bankruptcy filed will determine the outcome.
Yes, a deficiency suit can have a negative impact on your credit score. It will be reported as a delinquent debt, which can lower your credit score and make it more difficult to obtain credit in the future.
If a deficiency judgment is obtained by the lender, they may be able to seek wage garnishment to collect the outstanding debt. However, the laws regarding wage garnishment vary by jurisdiction.
In some cases, it may be possible to negotiate a settlement or payment plan with the lender to avoid a deficiency suit. This can help mitigate the financial impact and potentially prevent further legal action.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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