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When Banks Seek Deficiency Judgments After Foreclosure


After a foreclosure sale of a home, sometimes banks choose to continue to pursue the home owner. And North Carolina law provides that the banks have a right to do so. When a loan is secured by real property, such as a home, the property can be foreclosed upon if the borrower fails to pay the amounts owed under the loan agreement. The end goal of the lender is to have a foreclosure sale where the property will be auctioned. The proceeds from that foreclosure sale will be applied to lower the amount owed under the loan agreement. In some cases, the proceeds will be enough to completely payoff the loan. In many other cases, though, there will still be a balance.

If a balance remains after the foreclosure sale, the lender may be able to attempt to collect the “deficiency” from the borrower. This deficiency is the difference between the amount owed under the loan agreement and the amount received by the lender from the foreclosure sale. However, North Carolina’s anti-deficiency judgment statutes, N.C. Gen. Stat. §§ 45-21.38 and 45-21.38A, provide select circumstances where the lender cannot attempt to collect such a deficiency. Another statute, N.C. Gen. Stat. § 45-21.36, provides the borrower a powerful defense if the lender purchases the home for itself at the foreclosure sale.

What § 45-21.36 states is that a borrower being sued for the deficiency judgment has a right to assert an “offset” defense if the borrower proves (a) “the property sold was fairly worth the amount of the debt secured by it at the time and place of sale,” or (b) “the amount bid was substantially less than its true value.” If possibility (a) is proven, the borrower may be able to completely eliminate any obligation to pay the deficiency to the lender. If possibility (b) is proven, it may significantly limit the amount of the deficiency.

If a lender is pursuing a deficiency judgment against you, whether by a lawsuit or by a demand letter from its attorneys, the Raleigh civil litigation attorneys of Maginnis Howard may be able to help. To speak with our intake team about your rights, please visit our contact page or call us at (919) 526-0450.