North Carolina Deficiency Judgment Law

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. North Carolina has the following restrictions on obtaining a deficiency judgment:

  • For mortgages and deeds of trust recorded before January 1, 2010, the the mortgage company cannot receive a deficiency judgment against the borrower for any balance owing after a foreclosure if: (i) the property was sold by a mortgagee or trustee under a power of sale; and (ii) the borrower was living in the property (as a principal dwelling) at the time the foreclosure proceeding was commenced (N.C. Gen. Stat. Section 45-21.38A(d)(1));
  • For mortgages and deeds of trust recorded on or after January 1, 2010, the mortgage company cannot receive a deficiency judgment against the borrower for any balance owing after a foreclosure if: (i) the property was sold either judicially or non-judicially; and (ii) the borrower was living in the property (as a principal dwelling) at the time the foreclosure proceeding was commenced (N.C. Gen. Stat. Section 45-21.38A(d)(2));
  • A lender may not recover a deficiency judgment after a foreclosure by a power of sale when the loan was taken to purchase the property (purchase-money mortgage) (N.C. Gen. Stat. Section 45-21.38).
  • If a lender is able to seek a deficiency judgment, the borrower may raise as a defense that the deficiency judgment should be limited to the fair market value of the property at the time of the foreclosure (N.C. Gen. Stat. Section 45-21.36).

North Carolina has strict rules on whether certain types of loans do or do not qualify under the foregoing rules.  Some of these rules apply to a purchase-money loan, but not to a home equity loan or a reverse mortgage.  It is very important to speak with an experienced attorney in your area as to whether these statutes apply to your situation.

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 North Carolina 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 options.

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