New York Deficiency Judgment Law

Foreclosures in New York are now conducted exclusively by judicial foreclosure.  A deficiency is created when a lender forecloses on a property and receives less than what was owed on the property.  A deficiency judgment is created when a lender sues and gets a judgment on the amount still owed on the loan after the foreclosure.  New York has the following restrictions on obtaining a deficiency judgment:

  • A deficiency judgment is obtainable if the defendant (borrower) was properly served with the lawsuit or if he/she makes an appearance in the action;
  • The deficiency is limited by the fair market value of the property, as determined by the Judge. (New York Real Prop. Acts. Section 1371).

Regarding the last bullet point, in a situation where $100,000 was owed on the property when foreclosed upon, the property sold at foreclosure for $70,000, and the property was actually worth $90,000, a mortgage company could only seek a $10,000 deficiency (the amount owed minus the fair market value) even though it actually lost $30,000 (the amount owed minus the foreclosure sale price).

What the fair market value of a property is can be difficult to determine and the homeowner and the mortgage company will likely disagree as to that value.  If you live in New York and have questions about whether your particular situation might give rise to a deficiency judgment, speak to an attorney in your area for specific guidance.  Or continue searching this site for potential foreclosure alternatives

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