Deficiency Judgments Likely From Second Mortgage

Few institutional mortgage lenders are pursuing deficiencies but that doesn’t mean it won’t happen. Borrowers should be aware of distinguishing between personal liability on the first and second mortgages. When either of these forecloses, the first mortgage will most likely take the property which they eventually will sell. The 2nd mortgage holder will net nothing from the foreclosure sale. If the first mortgage holder pursues a deficiency judgment, the borrower can defend the action by arguing that the property was repossessed which satisfies the mortgagee. Unfortunately, the borrower does not have this same defense against the second mortgage company since they haven’t received anything at foreclosure and may sue on the mortgage note. They could demand repayment of the promissory note without going through the foreclosure proceeding which could happen up to five years later.

Typically there is a higher risk of being pursued for a deficiency judgment when there is more than one mortgage obligation.