In these times, when residential foreclosures are common and increasing, both lenders and homeowners should be aware of the extremely short time limits in which a deficiency action may be brought after a trustee’s sale.
A deficiency action may exist under certain circumstances where a lender seeks a judgment against a homeowner whose property sells for less at a foreclosure sale than the amount of the loan. In other words, if a homeowner owes on an outstanding promissory note in the amount of $100,000.00, and if the foreclosed property brings only $80,000.00 at a trustees’ sale, there is a potential $20,000.00 deficiency in favor of the lender. While a lawsuit seeking payment on the deficiency may not be brought against most residential homeowners, there are circumstances where these protections will not be afforded and the homeowner will be liable for the difference.
The statute of limitations/statute of repose for bringing a deficiency action against a homeowner is extremely short. The lender must bring the deficiency action within 90 days of the date of sale of the property. If no deficiency action is filed within that time frame, the lender may thereafter not pursue the homeowner for any deficiency arising out of the trustee’s sale.