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Can lenders seek a deficiency judgment following foreclosure?

When a house is foreclosed upon, the proceeds of the sale generally go first to the lender that issued the mortgage. However, sometimes those proceeds are insufficient to cover all that is still owed on the mortgage. When this happens, Tennessee law permits lenders to pursue a deficiency judgement. This is a lawsuit brought against the mortgagor in which the lender seeks the remainder of what they are owed per the terms of the mortgage.

Under Tennessee law, if a lender seeks a deficiency judgment, absent issues with the foreclosure process such as fraud, collusion or misconduct, the lender may receive the full amount of the mortgage along with the costs incurred from foreclosing on the property, minus the fair market value of the property when it was sold. There is a rebuttable prima facie presumption that the price of the property when it was sold is the fair market value of the property.

To overcome this rebuttable presumption, the mortgagor must show by a preponderance of the evidence that the property's sale price was materially less than its fair market value. If the mortgagor is successful in making this argument, the deficiency will be calculated as the amount owed before the foreclosure sale plus any costs relating to the foreclosure, minus the fair market value of the property when it was sold.

With some exceptions, lenders generally only have two years from the time of the foreclosure sale to pursue a deficiency judgment. Therefore, if they have not been fully paid what they are owed following a foreclosure, they may not want to wait too long to act. This is only a very general overview of deficiency judgments and cannot serve as the basis for any legal action. Instead, lenders will want to discuss the matter with a professional, so they can better understand how the law applies to the facts of their specific case.

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