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
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:
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
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).
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.
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.
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
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, Nolo.com and http://codes.ohio.gov./orc.,
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 email@example.com or
937-974-0616. Thank you and Happy Holidays!