Although many homeowners worry themselves over the possibility of being sued after foreclosure, few seem to know exactly how a deficiency judgment works. There is no way to tell for sure whether or not the bank will even be able to go after this, let alone if they will decide to pursue the additional lawsuit. Homeowners can only find out the risk they have to a deficiency judgment once the foreclosure has already gone through and the home has been auctioned off. They will not be able to find out before the sheriff sale of the property, because the bank and county do not know how much the property will sell for.

The mortgage company and county government, before the sheriff sale, know only how much the judgment is against the the homeowners, which is why they are selling the house. Of course, they may run comparable sales, order a broker's price opinion, or otherwise attempt to come up with a realistic value for the property, but nothing is settled until the sheriff sale is actually conducted. If the foreclosed home sells for more than enough to cover the amount owed on the mortgage at the time of auction, then the bank has absolutely no grounds to continue with another lawsuit after the foreclosure.

Thus, the homeowners will just have to wait for the sheriff sale of the house to find out if a deficiency judgment is even a possibility. If the home sells for less than the total amount that was owed to the mortgage company, which is entirely probable, then the former owners will have slightly more to worry about. The bank may be able to sue them, depending on the state foreclosure laws, after the auction for the difference between what they were owed and how much the house sold for. This is not allowed in all states, but just having a deficiency in the amount paid at auction and amount owed does not automatically mean a deficiency judgment will be pursued by the mortgage company.

In fact, why would the bank bother to sue the foreclosure victims again? They were unable to pay the monthly mortgage, they could not stop foreclosure by selling or refinancing to pay off the foreclosure judgment, and the county government had to force their home to be auctioned off to the highest bidder. Those are not the actions of a person who has the financial ability to pay tens of thousands of dollars in further judgments after foreclosure, and the lenders are well aware of this fact when considering whether or not to sue for a deficiency judgment.

Homeowners should not take this as a personal attack against their willingness to pay their debts -- foreclosure happens because people run into unexpected financial hardships when they are unprepared to deal with them. But from the bank's perspective, that hardship protects the foreclosure victims from the lender trying to go after even more of the owners' resources. They will have to hire local attorneys again to initiate another lawsuit in the local court system for the deficiency. Then the bank will have to try to collect on it, when the homeowners proved they were unable to pay back the mortgage loan and foreclosure judgment they had to begin with.

Thus, it is not really in the mortgage company's interest to sue the homeowners again after they have just lost a home to foreclosure. The time and money spent on pursuing another worthless, noncollectable judgment could be much better spent soliciting for new customers or preparing the home to be listed on the open market. Unless the homeowners have vast, liquid assets (not second homes or automobiles or collectibles) that the bank could seize, there is very little reason to expect that they will be sued for a deficiency judgment if they lose their home to the foreclosure process.

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