Attorney Deanne Koll explains what you should consider when your foreclosure attorney asks if you want to waive deficiency.
Disclaimer: This video is designed to be educational and informative, but it is not legal advice. Collection law is constantly evolving and subject to change. Each situation is unique, and each case should be addressed to fit the unique situation.
One of the first things your foreclosure attorney is going to ask you when receiving your file is, “Do you want to waive deficiency?” The answer to that question is easy to answer, so long as you know what to analyze in the loan file.
Deficiency is the amount that the lender may come up short on the balance due, after the sale of the collateral. The borrower remains liable to the lender for that amount. That deficiency amount, at the end of the foreclosure, becomes a judgment which the lender then may try to collect from the borrower.
When considering whether to preserve your right to seek a deficiency judgment, a lender should first consider the likelihood of collecting that deficiency, once obtained. Meaning, even if the lender obtains a deficiency judgment, is the borrower collectible? If not, then seeking a deficiency would be pointless.
A second consideration is whether there will be a deficiency. When you look at the loan-to-value ratio, is it likely that your collateral will sell for less than you are due? If not, or you feel like you’re fully collateralized, then seeking a deficiency would be pointless.
A last consideration is whether you’re willing to wait the longer time period to get the property back. When a lender preserves deficiency in a foreclosure, it doubles the redemption period. In an owner-occupied home, the waiting period goes from 6 months to 12 months. A lender should consider the added time in getting back the property in conjunction with the collectability of the loan and the loan-to-value issue.
There are other considerations to determine whether to seek a deficiency in a foreclosure. You should speak with your foreclosure counsel to fully analyze any particular situation.