New Hampshire law places no significant restrictions on deficiency judgments. A foreclosing bank may get a deficiency judgment with either a judicial or nonjudicial foreclosure.
What Is a Deficiency Judgment?
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 allow a foreclosing bank to get a deficiency judgment (a personal judgment) against the borrower for the amount of the deficiency balance.
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.
How to Calculate a Mortgage Deficiency in New Hampshire
Suppose Nelly stopped making her mortgage payments, and the bank began a foreclosure. Eventually, after finishing all of the required steps under state law, Nelly's home was sold to a new owner at a foreclosure sale for $600,000. But at the time of the sale, she owed $650,000 on the mortgage loan. The deficiency in this situation is $50,000.
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.
What Happens After a Foreclosure in New Hampshire?
New Hampshire foreclosures are typically nonjudicial, which means the foreclosing bank doesn’t have to go to court. Instead, the process takes place outside of the court system. (Judicial foreclosures are also possible in New Hampshire but not common. In a judicial foreclosure, the foreclosing bank sues the borrower in court.)
Because New Hampshire foreclosures are normally nonjudicial, this article focuses on that process.
The nonjudicial foreclosure process in New Hampshire is fairly straightforward and brief: The bank has to personally serve or mail the borrower one notice called a “notice of sale” about an upcoming foreclosure sale at least 45 days before the sale. The notice is also published in a newspaper for three weeks prior to the 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.
In New Hampshire, you might have to pay a deficiency judgment after a foreclosure sale.
How Do Deficiency Judgments in New Hampshire Work?
To get a deficiency judgment after a nonjudicial foreclosure, the bank has to file a lawsuit. (N.H. Rev. Stat. § 508:6).
The bank has to show that the foreclosure sale price was fair and reasonable, which depends on the circumstances of each case, and isn't necessarily based on the property’s fair market value.
How Can I Avoid a Deficiency Judgment in New Hampshire?
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
If you have questions about how the foreclosure process works in New Hampshire, what foreclosure avoidance options might be available to you, like a modification, short sale, or deed in lieu of foreclosure, consider talking to a local foreclosure attorney or a HUD-approved housing counselor.