If you're facing a foreclosure in Indiana, it's important to understand how deficiency judgments work. A "deficiency judgment" occurs when your property is sold at a foreclosure sale for less than the amount you owe on your mortgage, and the lender seeks to recover the remaining balance from you personally.
In Indiana, foreclosure laws generally allow lenders to pursue this type of judgment. However, homeowners have options to avoid or reduce it.
How Do Indiana Foreclosures Work?
If you fall behind in your mortgage payments in Indiana, the bank may foreclose. Indiana foreclosures are judicial, which means they go through the court. The bank files a lawsuit to start the foreclosure process.
Waiting Period in an Indiana Foreclosure
There’s a waiting period between the filing of the lawsuit and the foreclosure sale. The waiting period is:
- three months if the mortgage was signed on or after July 1, 1975
- six months if the mortgage was signed on or after January 1, 1958, but before July 1, 1975, and
- twelve months if the mortgage was signed before January 1, 1958.
Judgment and Foreclosure Sale
After the waiting period ends, if the bank prevails in the suit, the court will enter a judgment of foreclosure, and the property is sold at an auction.
How a Foreclosure Sale Might Result in a Deficiency
At the foreclosure sale, the bank will likely make a bid on the property, normally with a credit bid. With a credit bid, the bank bids a credit in an amount up to what the borrower owes on the loan. The bank doesn't have to bid cash at the foreclosure sale.
The bank might make a full credit bid, or it might bid less than the total amount owed, resulting in a deficiency.
How to Calculate the Amount of the Deficiency in Indiana
If the borrower’s total debt is $500,000, but the home sells to the highest bidder at a foreclosure sale for $450,000, the deficiency is $50,000.
What Is a “Deficiency Judgment” After a Foreclosure Sale?
A "deficiency judgment" is a personal judgment against the borrower for the deficiency amount.
How Banks Collect Deficiency Judgments
Generally, once a bank gets a deficiency judgment, it may collect this amount (in the example above, $50,000) from the borrower using regular collection methods, like garnishing wages or levying a bank account.
Do Foreclosures Always Result in a Deficiency?
If the sale price equals or exceeds the mortgage debt amount, there's no deficiency. In fact, if the sale results in surplus funds (more than what's needed to pay off any other liens, like a second mortgage or HELOC), you might be entitled to that extra money following the foreclosure sale.
Does Indiana Allow Deficiency Judgments?
Yes. Indiana generally allows deficiency judgments. But you might be able to avoid one.
What Are Indiana's Deficiency Judgment Laws?
To find Indiana's foreclosure laws, including the statutes covering deficiency judgments, go to the Indiana General Assembly's webpage. Then, look in Title 32 (Property), Article 29 (Mortgages), Chapter 7 (Foreclosure. Redemption, Sale, Right to Retain Possession) of the Indiana Code. Also, see Title 32, Article 30, Chapter 10.
Can I Avoid a Deficiency Judgment in Indiana?
In Indiana, a foreclosing bank may generally get a deficiency judgment against the borrower, but not if the borrower gets the bank's consent and waives (gives up) the waiting period. (Ind. Code § 32-29-7-5, § 32-30-10-7 (2025).)
For example, suppose Izzie owes $450,000 to the bank, and her property sells at a foreclosure sale for only $400,000. The deficiency is $50,000. But if Izzie and the bank previously agreed to forgo the waiting period, then the bank can't get a deficiency judgment for the $50,000.
Other Ways to Avoid a Deficiency Judgment in Indiana
If your bank gets a deficiency judgment against you, you might be able to eliminate your liability for the judgment (and other dischargeable debts) in a Chapter 7 or Chapter 13 bankruptcy.
Or you might be able to work out a settlement with the bank to accept less than the full deficiency amount and forgive the rest. Generally, however, the IRS considers forgiven debt as taxable income, subject to some exceptions.
Getting Help With an Indiana Foreclosure
If you’re facing a foreclosure in Indiana and need help arranging a waiver of the waiting period so you can avoid a deficiency judgment, consider talking to a foreclosure attorney. A foreclosure attorney can also advise you about different ways to avoid a foreclosure if you want to keep your home.
For additional information about different options that might be available to you to prevent a foreclosure, like a loan modification, forbearance agreement, or repayment plan, also consider talking to a HUD-approved housing counselor.