Yes, you may still owe money to the bank even after your home has been foreclosed. If the foreclosure sale doesn’t cover the full amount of your mortgage—including the loan balance, interest, and legal costs—the difference is called a deficiency. In states like Kentucky and Indiana, the lender can pursue a deficiency judgment to collect that remaining amount from you directly.
If you’re facing foreclosure or worried about owing money after losing your home, you’re not alone—and you do have options. At O’Bryan Law Offices, our experienced Kentucky bankruptcy attorneys are here to help you understand your rights and explore solutions that work for your situation.
Call us today at (502) 339-0222 to schedule a free consultation and take the first step toward regaining control of your finances.
What Is Foreclosure?
When a homeowner falls behind on mortgage payments, the lender has the legal right to begin foreclosure. Foreclosure is a legal process that allows the lender to take back and sell the home to recover the unpaid loan balance. Both Kentucky and Indiana use judicial foreclosure, meaning the lender must go through the court system before the property can be sold.
Knowing how the foreclosure process works is the first step to protecting your rights and avoiding added financial stress. If you need guidance, a foreclosure attorney in Kentucky can help you understand your options and take action before it’s too late.
Foreclosure Process
Foreclosures in Kentucky and Indiana follow a court-supervised timeline. While each case can vary, the general steps typically include:
- Missed Payments – Falling behind on mortgage payments puts your loan in default.
- Breach Letter – The lender must send notice giving you a chance to fix the default.
- 120-Day Waiting Period – Under federal law, lenders must wait 120 days after a missed payment before they can initiate a foreclosure lawsuit in court.
- Foreclosure Lawsuit – A court case is filed. You usually have 20 days to respond.
- Court Judgment – If the lender wins, the home is scheduled for a public sale.
- Foreclosure Sale – The property is sold at auction to the highest bidder.
- Eviction – The new owner can request possession after giving proper notice.
- Redemption Period – In some cases, you may have a short window to buy the home back.
Foreclosure Sale
A foreclosure sale is a public auction of a home after the lender receives court approval. The proceeds are used to pay down the outstanding mortgage debt. If the home sells for less than what the home is worth or what’s owed, the bank after the foreclosure sale may pursue a deficiency judgment to recover the remaining balance.
Judicial vs Non-Judicial Foreclosures
There are two main types of foreclosure that a lender may be able to choose between when they want to foreclose on your home. These are called judicial foreclosure and non-judicial foreclosure. While many states allow lenders to choose which route to take, many do not. Kentucky, for example, requires lenders to go through the judicial foreclosure process. All states allow for judicial foreclosures, but not all allow non-judicial foreclosures.
Judicial Foreclosure
In a judicial foreclosure, the lender must get a deficiency judgment from the court to foreclose on your home. Lenders can begin this process when they sue borrowers in court for the deficiency amount. Both the lenders and the borrowers will then submit evidence to support either proceeding with or delaying the foreclosure action.
Then, the court enters a deficiency judgment in favor of either the lender or the borrower. If the judgment favors the lender, this will trigger the foreclosure sale. This may then allow the lender to get a deficiency judgment against the borrower if the remaining balance on the mortgage loan is not covered by the foreclosure sale. In other words, the borrower owes more on the home than the profit from the foreclosure sale price.
Generally, a judicial foreclosure takes much longer than a nonjudicial one. The process can often be delayed by up to a year or more, giving borrowers valuable time to organize their mortgage debt and finances.
Non-Judicial Foreclosure
During a nonjudicial foreclosure, the lender can pursue a mortgage foreclosure with a foreclosure trustee rather than the court. A foreclosure trustee is a neutral third party who may or may not be listed in the property’s deed. As with judicial foreclosures, the lender will begin the process by sending a notice of default to the borrower.
They may then give the borrower time to catch up on their remaining debt, or to negotiate a settlement. Depending on the specific foreclosure laws in your state, the lender may or may not send a notice of sale along with the default notice. Kentucky and Indiana, specifically, do not allow non-judicial foreclosures. Lenders must go through the court system to pursue mortgage foreclosures or deficiency judgments.
Keep in mind that foreclosure procedures differ significantly by state. In Kentucky, working with a foreclosure defense lawyer can help you avoid serious missteps—especially if your lender may seek a deficiency judgment. If you’re struggling with secured or unsecured debt, or facing legal action after foreclosure, contact O’Bryan Law Offices as soon as possible for guidance.
What Is a Deficiency Judgment?
If the foreclosure sale price is less than the total amount owed on the mortgage, the lender can pursue a deficiency judgment to recover the remaining balance. This is a court order that allows the lender to hold the borrower personally responsible for the unpaid portion of the loan—even after the home has been sold.
Not all states allow deficiency judgments, but both Kentucky and Indiana do. That means if your home sells for less than what you owe, the lender can come after you for the difference. This often happens when a property is “underwater,” meaning the mortgage balance exceeds the home’s market value.
If you’re facing foreclosure in Kentucky or Indiana and are worried about being held liable for a deficiency, don’t wait.
Call O’Bryan Law Offices today at (502) 339-0222 to schedule your free consultation and find out how we can help protect your finances.
Collection Methods for Deficiency Judgments
If a lender obtains a deficiency judgment, they can use several legal methods to collect the unpaid balance—though the specific tools available depend on state law. In both Kentucky and Indiana, creditors must follow strict guidelines when pursuing collection.
Common collection methods include:
- Wage garnishment – A portion of your paycheck is withheld and sent directly to the creditor.
- Bank levies – The creditor may freeze and withdraw funds from your bank account.
- Property liens – A lien can be placed on your home, car, or other assets, making it difficult to sell or refinance without paying the debt.
These actions can be financially disruptive, which is why it’s so important to understand your rights. Speaking with a bankruptcy or foreclosure attorney in Kentucky or Indiana can help you stop or prevent aggressive collection efforts.
Can My Lender Sue Me for Deficiency Judgments?
Yes. In fact, a deficiency judgment is not automatic in the states where they are permitted. This means that a lender must file a motion with the court to request a deficiency judgment against the debtor. If the lender files this motion, the court may decide that the money the lender obtained from the foreclosure sale price was sufficient enough.
Does Kentucky Allow Deficiency Judgments?
Yes. The Kentucky foreclosure process allows lenders to seek personal judgments against their debtors to recover the deficiency amount. If the court grants the deficiency judgment in favor of the lender, they can then attempt to collect the deficiency balance.
As an example, let’s say that Frank owes $250,000 on their home, but the home only sells for $200,000 at its fair market value. Kentucky law allows the lender to seek a judgment against Frank to recover his deficiency debt. In this case, the lender can start attempting to collect on Frank’s deficiency balance.
Is There a Limit to How Much My Deficiency Judgment Can Be?
Kentucky state law limits how much a deficiency judgment can be. This limit is the difference between what the borrower owes and the property’s fair market value. As an example, let’s say you owe $400,000 on your home to your lender. However, the home’s fair market value is only $350,000.
Let’s say that the property sells for $300,000. In this case, the lender can collect only $50,000 instead of the $100,000 that they are owed. Additionally, the statute of limitations on debt in Kentucky allows lenders to collect on the debt for only up to 15 years after the judgment is received. Once this 15 year time limit passes, lenders can no longer attempt to collect on the debt, unless they apply to have the time limit extended.
Remember that secured and unsecured debts of different types may have different statutes of limitations. Speak with your attorney to learn more about how you can legally protect yourself against aggressive collection practices on time-barred debts.
How to Avoid a Deficiency Judgment
If you’re facing foreclosure, it’s important to act early to avoid being held responsible for any remaining balance on your mortgage. A deficiency judgment can follow you long after your home is gone—but with the right strategy, it may be possible to eliminate or reduce what you owe.
Some ways to avoid a deficiency judgment include:
- Selling the property before foreclosure
- Exploring a short sale
- Offering a deed in lieu of foreclosure
- Negotiating a new payment plan with your lender
- Filing for bankruptcy
Each of these options has pros and cons depending on your situation. And remember: if any portion of your debt is forgiven outside of bankruptcy, the IRS may count it as taxable income.
The key is to take action before the foreclosure process is complete. The team at O’Bryan Law Offices can help you understand your options and determine the best path forward. Call (502) 339-0222 for a free consultation today.
Short Sales and Deeds in Lieu of Foreclosure
Most states allow borrowers to pursue a short sale or to offer a deed in lieu of foreclosure if they want to avoid a deficiency judgment. In a short sale, the home sells for an amount that is less than the amount of the loan. This is common when real estate prices begin to fall. Lenders and banks opt for short sales as a way to mitigate their losses instead of going through the lengthy process of foreclosure.
Borrowers can also offer the deed to the property as a way to avoid foreclosure. A deed in lieu of foreclosure involves giving the deed to your mortgage lender so that they do not initiate the foreclosure process against you. This can protect you from a sharp drop in your credit score, as well as release you from your mortgage payment obligations.
Negotiating a Payment Plan with Your Lender
It is also possible to negotiate a new repayment plan with your mortgage lender. Foreclosures are long, expensive processes. In many cases, both borrowers and lenders want to avoid them at all costs. One of the best ways to avoid a foreclosed home and a deficiency judgment is to have your attorney negotiate with the lender on your behalf. The attorneys at O’Bryan Law Offices are well-versed in foreclosure defense strategies in both Kentucky and Indiana. Let our skills go to work for you and save you from financial hardship.
Can I File Bankruptcy After Foreclosure?
In many cases, yes. You can avoid liability for a deficiency judgment by filing for Chapter 7 or Chapter 13 bankruptcy. Bankruptcy is one of the best options for debtors who are struggling with debt and facing foreclosure. Filing bankruptcy triggers the automatic stay, which stops foreclosure proceedings, prevents collection activities, and offers many other legal benefits.
Options such as Kentucky debt consolidation do not offer these legal protections. For more information about how bankruptcy can help lenders with foreclosure, contact O’Bryan Law Offices as soon as possible.
What You Should Do Next
If you’re dealing with foreclosure or worried that you may still owe the bank a deficiency judgment, it’s crucial to act quickly and carefully. Begin by reviewing your mortgage documents and all communications from your lender. Understanding your current situation will help you make informed decisions as you move forward.
Next, explore your options carefully. These may include reinstating your mortgage, negotiating loss mitigation, pursuing a short sale, or filing for bankruptcy. Each option has its own benefits and consequences, so understanding them is essential. Don’t wait until the last minute—early action can provide you with more choices and better outcomes.
To get started, consider these steps:
- Carefully review all notices and mortgage statements
- Contact your lender’s loss mitigation department promptly
- Ask about loan modification options that could make your payments more manageable
- Consult a qualified foreclosure or bankruptcy attorney
- Keep detailed records of all communications and payments
Taking these actions can protect your rights and increase your chances of resolving your financial challenges. If you need guidance or legal help, the attorneys at O’Bryan Law Offices are ready to assist.
Contact O’Bryan Law Offices Today
If you’re struggling to get back on your feet while dealing with crushing debt, you still have one option that can offer you numerous legal protections: bankruptcy. When you submit your bankruptcy petition, you receive the protection of the automatic stay. This will protect you from a mortgage foreclosure, a deficiency lawsuit, creditor harassment, and even collection activities. Other options, such as debt consolidation, don’t offer these same protections.
To learn more about how bankruptcy can help in your situation, contact a bankruptcy attorney with O’Bryan Law Offices. Schedule your free consultation with us by calling (502) 339-0222 today.
FAQs
When a house is foreclosed by the bank, the lender takes ownership of the property and typically sells it at a public auction to recover the outstanding loan balance. If the sale doesn’t cover the full debt, the bank may pursue additional collection actions, such as seeking a deficiency judgment for the remaining amount owed.
Yes, you may be able to save your home even after foreclosure begins. Options include catching up on missed payments, negotiating a loan modification, or filing for bankruptcy to stop the process. Acting quickly and working with a qualified foreclosure attorney greatly improves your chances.
In most cases, if your house is foreclosed and sold at auction, the proceeds go to paying off your mortgage and any related costs. If the sale price exceeds what you owe, you may receive the leftover funds. However, this is rare since foreclosure sales often don’t cover the full loan balance.
