Deficiency Judgments In Foreclosure In Ohio

Dated: 12/09/2014

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Hello, while trolling on Facebook I saw an article on Deficiency Judgments in foreclosures in Florida. Well, that peaked my in interest and I started to wonder about Ohio.  First, allow me to define for you what a deficiency judgment is?  Deficiency judgment is the unsecured money judgment against a borrower who has a mortgage foreclosure sale.  When the sale of the property did not produce sufficient funds to pay off the underlying promissory note, or loan, in full, the bank could come back and do a judgment against the original owner of the property. An example is: say the total mortgage debt owed is $200,000, but the home only sells for $150,000 at the foreclosure sale.  The deficiency is $50,000.  The bank/mortgage company could get a deficiency judgment to collect the additional monies owed. In Ohio, the rules for deficiency judgment are a little different from the rest of the country:
  • Deficiency judgments are allowed. In Ohio, the lender may obtain a deficiency judgment after a foreclosure, but that judgment is void two years after confirmation of the sale by the court. (Ohio Rev. Code § 2329.08).
  • Limitation on Deficiency Judgments. The property cannot be sold at foreclosure sale for less than two-thirds of the appraised fair market value. (Ohio Rev. Code §§ 2329.20, 2329.17). This limits the amount of the deficiency that is available to the lender. 
Second Mortgages Generally, when a senior lienholder forecloses, any junior liens (these would include second mortgages and/or home equity line of credit (HELC), among others) are also foreclosed and the junior lienholders loses 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 may face lawsuits from those lenders to collect the balance of the loans.   Attorney Fees Ohio follows the “American Rule” regarding the recovery of attorney fees. This rule says that the winning party in a civil lawsuit may not recover attorney fees as a part of the costs of litigation. The Ohio courts have held that a lender cannot get attorneys’ fees in a foreclosure nor can it collect fees in a payoff (even though mortgage contracts typically include a provision allowing such fees to be collected) because it would be against public policy. However, if the borrower reinstates the loan before foreclosure (this happens when the borrower pays the past due amount to bring the account current and stop the foreclosure), the lender is allowed to add the fees to the borrower’s total debt.   Short Sales There is no Ohio law that says a lender cannot get a deficiency judgment following a short sale. To avoid a deficiency judgment, the short sale agreement must expressly state that the lender waives its right to the deficiency. If the short sale agreement does not contain this waiver, the lender may file a lawsuit to obtain a deficiency judgment.   A Deed in Lieu of Foreclosure A deed in lieu of foreclosure occurs when a lender agrees to accept a deed to the property instead of foreclosing in order to obtain title. With a deed in lieu of foreclosure, the deficiency amount is the difference between the fair market value of the property and the total debt. Usually, a deed in lieu of foreclosure is deemed to fully satisfy the debt. However, lenders frequently look for new ways to recoup their losses and Ohio does not have a law that says the lender cannot get a deficiency judgment following a deed in lieu of foreclosure. This means that a lender may try to hold the borrower liable for a deficiency following a deed in lieu of foreclosure. 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 does not contain this provision, the lender may file a lawsuit to obtain a deficiency judgment. I want to thank you for reading this technical financial blog on deficiency judgments in foreclosures. Hopefully, you learned something like I did in researching the information. I want to thank CNN Money, and, for helping me write this blog. If you would like any more information about deficiency judgments in foreclosures or any other topics please let me know at or 937-974-0616. Thank you and Happy Holidays!
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Kendall West

Real Estate Sales Associate At Realty Central....

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