O’Bryan Law Offices represents Bankruptcy clients throughout all of Kentucky and Southern Indiana. We offer in-person and video/telephone consultations for people so they can understand their financial options from the comfort of their own home.
Call now for a FREE consultation!
Close this search box.

O'Bryan Blog


If My House Is Foreclosed, Do I Still Owe the Bank?

if my house is foreclosed do i still owe the bank

Foreclosures are already stressful for those who are at risk of them or are currently entangled in the process. Even facing the possibility of foreclosure can be a serious blow for a homeowner. If you lose your home in a foreclosure sale, the proceeds either will or won’t cover your mortgage debt amount. When this happens, you may find yourself asking, “If my house is foreclosed, do I still owe the bank?” Even though they no longer own the home, many borrowers are surprised to learn that they still owe the bank after the foreclosure sale.

At O’Bryan Law Offices, we understand that times are tough. Losing your home in a foreclosure sale is a very stressful experience. Finding out that you still owe money after that can make it even worse. However, you still have options when it comes to getting back on track with your finances. One of the best ways to achieve a fresh financial start is to file for bankruptcy. Although it may sound scary, bankruptcy has helped countless debtors regain control of their lives by giving them some much-needed breathing room.

Our Kentucky bankruptcy lawyers are here to help you discover exactly what bankruptcy can do for you in your current situation. If you’re struggling to make your mortgage payments, and you fear losing your home, contact a Kentucky foreclosure attorney today at 502-339-0222 for a free consultation.

What Is Foreclosure?

Foreclosure is a legal process during which a mortgage lender attempts to recover their losses when someone defaults on their mortgage loan. Defaults are triggered when someone misses a certain number of monthly mortgage payments. Once the borrower defaults, the lender can take ownership of the home and sell it for its fair market value.

This can happen because the mortgage lender uses the home as collateral if the borrower fails to uphold the terms laid out in the mortgage agreement. Remember that the Kentucky foreclosure process may differ slightly from other states, so it’s important to understand the differences ahead of time.

Judicial vs Non-Judicial Foreclosures

if my house is foreclosed do i still owe the bank

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 can take much longer than a nonjudicial foreclosure. Those facing foreclosure may be able to delay the process by up to a year or more. This may give the borrower time to get their mortgage debt and other finances in order.

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.

Remember that these foreclosure processes vary greatly from state to state. Working with a foreclosure defense lawyer Kentucky can help you avoid costly mistakes that could cost you your home. Contact O’Bryan Law Offices as soon as possible if you are struggling with unsecured debt (such as credit card debt), secured debt, or deficiency lawsuits.

What Is a Deficiency Judgment?

if my house is foreclosed do i still owe the bank

In the foreclosure process, a deficiency judgment is a ruling from the court that allows a lender to collect from a borrower. If borrowers still owe money on a home after the property has sold at the fair market value, this is one situation in which a lender or mortgage company can ask the court for a deficiency judgment. Not all states allow deficiency judgments after foreclosure, but Kentucky and Indiana allow them.

Many lenders who owe more on their home than the home is worth (also called an underwater mortgage), which could lead lenders to pursue deficiency judgments to recoup their losses.

How Do Creditors Collect Deficiency Judgments?

Depending upon the laws of your state, lenders may be able to collect a deficiency judgment in several ways. Some examples include wage garnishments, property liens, or placing a levy on the debtor’s bank account. Lenders must adhere to the permitted collection practices according to state law.

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?

if my house is foreclosed do i still owe the bank kentucky

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 Protect Yourself from Deficiency Judgments

If you are facing a mortgage foreclosure or a deficiency judgment from your creditors, there are a few ways in which you seek exemption from your debts. You may also file a motion to overturn the judgment, but you’ll need to back it up with evidence. No matter what route you take, we strongly recommend working with a Kentucky bankruptcy lawyer to explore your options.

Also, remember that the IRS will consider any forgiven debt as income. This means your forgiven debt will be subject to taxation, with very few exceptions. In the following sections, we outline the ways in which you can protect yourself against deficiency judgments.

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 Bankruptcy Protect Me from Deficiency Lawsuits?

if my house is foreclosed do i still owe the bank

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.

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.


Disclaimer: The use of the internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.