If you lose your home to a foreclosure sale in New York, but the property doesn’t sell for as much as you owe the bank on your home loan, the bank might come after you for a "deficiency judgment" (a court order requiring you to pay the deficiency).
However, if the bank doesn’t follow correct procedures or seek its deficiency judgment within a specific amount of time after the foreclosure sale, you won’t be on the hook for paying the deficiency balance. Also, even if the bank gets a deficiency judgment, the court may limit the amount of the judgment.
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.
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 New York Allow Deficiency Judgments?
Yes, but the bank must follow certain procedures, and the amount of the deficiency judgment is limited by the property's value.
How to Calculate a Mortgage Deficiency in New York
Suppose Newton stopped making his mortgage payments, and the bank began a foreclosure. Eventually, after finishing all of the required steps under state law, Newton's home was sold to a new owner at a foreclosure sale for $900,000. But at the time of the sale, he owed $950,000 on the mortgage loan. The deficiency in this situation is $50,000.
What Happens After a New York Foreclosure?
New York foreclosures are judicial, which means the process starts when the servicer (acting on behalf of the foreclosing bank) hires an attorney to initiate a lawsuit in court.
To officially begin the foreclosure, the bank files an action (a “complaint”) in court and serves it on the borrower. If the borrower ignores the lawsuit, the bank will win by default.
If the borrower responds and raises potentially legitimate defenses to the foreclosure, then a trial will likely take place. The bank must put on evidence to the court’s satisfaction to win the case. After doing so, the court will grant a judgment permitting the bank to sell the home at a foreclosure sale.
In New York, you might have to pay a deficiency judgment after a foreclosure sale.
What Are the Legal Requirements for a Deficiency Judgment in New York?
In New York, a deficiency judgment is allowed if the borrower was personally served or if the borrower enters an appearance in the foreclosure action. (N.Y. Real Prop. Act. Law § 1371 (2025).)
Time Limit for Requesting a Deficiency Judgment in New York
The foreclosing bank has to request the deficiency judgment within 90 days after consummation of the foreclosure sale. (The sale is consummated when the deed is delivered to the purchaser.) The request for a deficiency judgment is made simultaneously with the filing of a motion for an order confirming the sale. (N.Y. Real Prop. Act. Law § 1371(2) (2025).)
Limitation on the Deficiency Amount in New York
New York law limits the deficiency judgment by the fair market value of the property, which the court determines. (N.Y. Real Prop. Act. Law § 1371(2) (2025).)
For example, again, say Newton’s total debt is $950,000, and the bank is the high bidder at the sale in the amount of $900,000. The deficiency is $50,000. Normally, the bank could get a deficiency judgment for $50,000 and then try to collect that amount from the borrower. But if the court says that the fair market value of the property was really $925,000, the deficiency judgment is limited to $25,000.
How Can I Avoid a Deficiency Judgment in New York?
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.