After a foreclosure sale in Michigan, the bank might come after you for a "deficiency judgment." A deficiency judgment happens when the proceeds from the foreclosure sale aren't sufficient to cover the outstanding mortgage balance, leaving the borrower personally responsible for the difference.
In Michigan, a bank can pursue a deficiency judgment through the judicial foreclosure process or in a separate lawsuit after a nonjudicial foreclosure, potentially leading to wage garnishment or bank account levies. However, state laws provide the opportunity for homeowners to challenge the deficiency judgment, especially if the property was sold for less than its fair market value.
Understanding Michigan's deficiency judgment laws is crucial for homeowners navigating foreclosure and seeking to protect their financial future.
What Is a Deficiency Judgment in a Michigan Foreclosure?
If a property sells at a foreclosure sale for less than the full outstanding mortgage debt, the difference is commonly called a "deficiency balance." Some states, like Michigan, allow a foreclosing bank to get a deficiency judgment (a personal judgment) against the borrower for the amount of the deficiency balance.
Are Deficiency Judgments After a Home Foreclosure Allowed in All the States?
Some states have anti-deficiency laws prohibiting deficiency judgments after foreclosure in certain circumstances.
Does Michigan Allow Deficiency Judgments?
Yes. But in some circumstances, you can challenge the deficiency.
How to Calculate the Deficiency Amount in Michigan
Suppose Mike falls behind in his mortgage payments, and the bank chooses to foreclose nonjudicially under Michigan law. After completing the required publishing and posting steps, the home is put up for sale at a foreclosure sale.
The bank buys the home at the sale for $300,000, but Mike owes the bank $350,000. The deficiency in Mike’s case is $50,000.
What Happens After a Michigan Foreclosure?
In Michigan, the bank doesn't have to sue you in court to foreclose. Instead, the bank may use a nonjudicial foreclosure process. (In Michigan, the bank could choose to file a lawsuit to foreclose. But judicial foreclosures don't happen too often. Because most foreclosures in Michigan are nonjudicial, this article focuses on that process.)
A unique aspect of Michigan's nonjudicial foreclosure law is that the bank isn't required to notify the homeowner personally. Although the foreclosing bank must publish information about the foreclosure sale in the newspaper for four successive weeks, at least once each week, and post a copy of the notice of sale in a conspicuous place on the property within 15 days after the first publication, further notification isn’t required. (Mich. Comp. Laws § 600.3208 (2025).)
The process ends with a foreclosure sale. At a foreclosure sale, the bank typically bids on the home using a “credit bid.” Basically, the bank gets a credit up to the amount the borrower owes. Sometimes, the bank bids the full amount of the borrower's debt; sometimes, it bids less.
Whoever makes the highest bid at the sale, either the bank (which makes a credit bid) or a third party (who bids cash), becomes the property's new owner. If the final bid is less than what's owed on the mortgage loan, the sale results in a deficiency.
You might have to pay a deficiency judgment after a foreclosure in Michigan.
How Deficiency Judgments Work After Foreclosure in Michigan
Again, Michigan law allows the foreclosing bank to get a deficiency judgment.
What Legal Requirements Are Required to Get a Deficiency Judgment in Michigan?
The bank has to file a lawsuit after a nonjudicial foreclosure to get a deficiency judgment.
Challenging a Deficiency Judgment in Michigan Courts
Under Michigan law, if the foreclosing bank bought the home at the foreclosure sale and the price was substantially less than the fair market value of the property or the property was fairly worth the amount of the debt at the time of the sale, the foreclosed owner may contest (object to) the deficiency amount. (Mich. Comp. Laws § 600.3280 (2025).) This law applies to foreclosures by advertisement.
Continuing the example above, after the foreclosure, the bank files a lawsuit against Mike for the deficiency amount—$50,000. Mike contests the amount of the deficiency and proves to the court that his home was worth $325,000 at the time of the sale. The court grants a deficiency judgment in favor of the bank but limits it to $25,000.
Do Foreclosures in Michigan 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.
How Does a Bank Collect a Deficiency Judgment?
Once a bank gets a deficiency judgment, it can use common collections methods to collect the deficiency from the borrower by, for example, garnishing wages or levying a bank account.
Defense Against Deficiency Judgments in Michigan
The key defense against a Michigan deficiency judgment, as discussed earlier, is found in Mich. Comp. Laws § 600.3280, which allows borrowers to challenge the deficiency amount if the foreclosing bank bought the home at the foreclosure sale by proving that the foreclosed property was sold for less than its fair market value. If successful, this defense can reduce or eliminate the deficiency judgment entirely.
If you're looking to challenge the foreclosure action itself, you might be able to argue procedural irregularities, noncompliance with statutory foreclosure procedures, fraud, or unfair practices during the foreclosure process as grounds to contest the judgment. But be aware that you need to raise these issues during a judicial foreclosure or in your own lawsuit challenging a nonjudicial foreclosure before the process is completed.
Protecting Yourself From Deficiency Judgments After Foreclosure
A few ways to potentially avoid a deficiency judgment are:
- Negotiating a settlement of a deficiency. If you lost your home to a foreclosure sale, which resulted in a deficiency, 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.
- Completing a short sale or deed in lieu of foreclosure (before the sale) in which the bank waives the deficiency. If you owe more than your home is worth, the bank might be willing to let you complete a short sale or deed in lieu of foreclosure. But it’s fairly common for banks to insist borrowers pay all or some of the deficiency after one of these transactions or for the bank to reserve the right to go after you for a deficiency judgment. If you're doing a short sale or deed in lieu for the sole purpose of avoiding a deficiency judgment, make sure that the bank agrees in writing to give up its right to the deficiency. Again, there could be tax consequences if the bank forgives the deficiency.
- Filing for bankruptcy. You might be able to eliminate or reduce your liability for a deficiency if you file for bankruptcy.
Getting Help With a Deficiency Judgment After Foreclosure
If you're facing a lawsuit for a deficiency judgment after a foreclosure, and you think the bank bought your home at the foreclosure sale for far less than the property’s fair market value (or that the home was worth the amount of your debt), consider talking to a foreclosure attorney. An attorney can advise you about how to object to the deficiency.
If a bank already has a deficiency judgment against you and you want information about whether you can discharge (get rid of) the debt in a bankruptcy, consider talking to a bankruptcy attorney.