New York Real Estate Salesperson ExaminationFinancingMedium
A homeowner has fallen behind on their mortgage payments due to job loss. The lender has initiated the foreclosure process. After the property is sold at auction, the sale proceeds are insufficient to cover the outstanding mortgage balance and foreclosure costs. The lender then seeks a court order to collect the remaining debt from the borrower. What is this court order called?
- ADeficiency judgment
- BWrit of execution
- CLis pendens
- DDeed in lieu of foreclosure
Show answer & explanationAnswer & explanation
Correct answer: A. Deficiency judgment
A deficiency judgment is a court order that allows a lender to collect the remaining balance of a loan from a borrower after a foreclosure sale, when the sale proceeds were not enough to cover the full debt.
Why the other options are wrong
- B. A writ of execution is a court order to enforce a judgment, such as seizing assets, but the judgment itself for the remaining debt is a deficiency judgment.
- C. Lis pendens is a notice filed in public records to show that a lawsuit involving a property is pending, not a judgment for debt.
- D. Deed in lieu of foreclosure is a voluntary surrender of the deed to the lender to avoid foreclosure, which typically waives the lender's right to a deficiency judgment.
Deficiency Judgment
A court judgment obtained by a lender against a borrower for the remaining balance of a debt after a foreclosure sale, when the sale proceeds were less than the outstanding loan amount.
- Sought after a foreclosure sale.
- Applies when sale proceeds don't cover the full debt.
- Allows lender to pursue borrower's other assets.
Memory trick: When the sale falls short, the judgment fills the void.