When a property is sold at a foreclosure sale, the sale price might not be enough to pay off the mortgage debt. The difference between the total mortgage debt and the sale price is called a "deficiency."
In most states, the bank can get a personal judgment, called a "deficiency judgment," against a foreclosed borrower for the deficiency amount. Deficiency judgments are allowed in Wyoming.
What Is a Deficiency After Foreclosure?
Wyoming foreclosures can be judicial or nonjudicial. Judicial foreclosures go through the state courts. Nonjudicial foreclosures, however, happen outside of the court system. In Wyoming, foreclosures are typically nonjudicial. Either way, the process ends when the property is sold at a foreclosure sale.
At the sale, the bank can bid up to the total amount of the debt, including foreclosure fees and costs, or it might bid less. Banks regularly bid less than the total amount of a borrower's mortgage debt at foreclosure sales. Once again, the difference between the total debt and a lesser winning bid at the sale is the "deficiency."
Example of a Mortgage Deficiency in a Wyoming Foreclosure
Say Winston took out a $475,000 loan to buy a home in Cheyenne. Unfortunately, he later lost his job and fell behind in mortgage payments. Eventually, the bank foreclosed.
At the time of the foreclosure sale, Winston owed the bank $450,000, including interest, fees, and costs associated with the foreclosure. But Winston’s home sold for just $425,000 at the foreclosure sale.
The deficiency amount in Winston’s case is $25,000.
What Is a “Deficiency Judgment” After a Foreclosure Sale?
If state law allows it, the bank can seek a personal judgment against the borrower to recover the deficiency (if there is one) after a foreclosure sale. Again, this judgment is called a “deficiency judgment.”
Does Wyoming Allow Deficiency Judgments?
Yes, Wyoming law allows deficiency judgments.
What Are Wyoming's Deficiency Judgment Laws?
To review Wyoming’s nonjudicial foreclosure laws, including those covering deficiency judgments, go to the Wyoming Statutes (§§ 34-4-101 to 34-4-113 and 1-18-101 to 1-18-115). In this article, you'll find details on foreclosure and deficiency judgment laws in Wyoming, with citations to statutes so you can learn more.
Statutes change, so checking them is always a good idea. How courts and agencies interpret and apply the law can also change. And some rules can even vary within a state. These are just some of the reasons to consult with an attorney if you’re facing a foreclosure.
How Deficiency Judgments Work in Wyoming
The bank can seek a deficiency judgment after a nonjudicial foreclosure by filing a lawsuit. (Wyo. Stat. § 34-4-113 and § 1-18-113).
Deficiency judgments are also allowed with judicial foreclosures in Wyoming.
How Banks Collect Deficiency Judgments
After the bank gets the deficiency judgment, it can usually take steps to collect this amount from the borrower—$25,000 in the above example—through regular collection methods, like garnishing wages or levying a bank account.
How Can You Avoid a Deficiency Judgment in Wyoming?
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 (to prevent a foreclosure 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’re facing a Wyoming foreclosure and want to get information about potential defenses you might have, consider talking to a local foreclosure attorney. To learn about different ways to avoid a foreclosure, consider also talking to a HUD-approved housing counselor.
If you’re thinking filing for bankruptcy, consider talking to a bankruptcy attorney. While it might not make sense to file bankruptcy just to avoid having to pay a deficiency judgment, bankruptcy is often a good way to deal with multiple debts.