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What happens if a property I have a lien on is being foreclosed on?

What happens if a property I have a lien on is being foreclosed on?

Q: Can I pursue a promissory note after foreclosure?

Yes, you can pursue recovery on a promissory note even after a foreclosure, unless the note has an exculpatory clause that limits recovery to the foreclosure proceeds. This means you may still be able to collect the owed amount directly from the borrower, depending on the terms of the note.

Q: What happens if the foreclosure sale does not cover the debt?

If the foreclosure sale does not cover the debt, you may be eligible to file for a deficiency judgment to recover the remaining balance. However, this process varies by state, so it's essential to understand the specific laws and requirements in your state regarding deficiency judgments.

Q: Do all states allow deficiency judgments?

No, not all states allow deficiency judgments. The rules governing these judgments vary significantly, with some states prohibiting them altogether. It's crucial to check your state's laws to understand your options after a foreclosure.

Q: What should I do if I have an exculpatory clause in my promissory note?

If your promissory note contains an exculpatory clause, it may limit your ability to recover funds beyond the foreclosure proceeds. In this case, you should consult with a legal professional to understand your rights and options based on the specific terms of the note and applicable state laws.

Full question:

I am a broker representative who is owed an outstanding $18.5K commission on a real estate loan transaction. I took a promissory note and a lien on some condominiums as protective measurements for payment. Now the liened properties have been foreclosed on. Is there any method left for recovery?

Category: Real Property
Subcategory: Foreclosure
Date: 04/07/2025
State: Louisiana

Answer:

A deficiency judgment is typically in an amount equal to the difference between the funds received from a court sale of property and the balance remaining on a debt. Deficiency judgments are commonly issued when a property owner fails to pay amounts owed on a mortgage and the property securing the mortgage is sold to satisfy the debt, but the proceeds from the sale are less than the amount owed.

Deficiency judgments are not allowed in all states. In order to get a deficiency judgment in most states, the party owed money must file a suit for judicial foreclosure instead of just foreclosing on real property.

You might want to see USLF LA-5188 on our website which is a Louisiana Petition for Deficiency Judgment. It concerns defendants who have defaulted on loan payments, resulting in the foreclosure, seizure and sale of certain property of the defendants. Following the sale, a net unpaid balance due to petitioner remains, and petitioner requests that defendants be ordered to pay the full amount owing, along with interest, attorney’s fees and court costs. Petitioner further requests general and equitable relief. In addition, petitioner requests and is granted the appointment of an attorney to represent an absentee defendant in the matter.

If no funds were left over after the foreclosures, you can still bring suit on the promissory note unless it contains an exculpatory clause restricting you to proceeds from a foreclosure.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

What is a deficiency judgment?

A deficiency judgment is a court order that allows a lender to recover the difference between the amount owed on a mortgage and the amount received from the sale of a foreclosed property. This judgment is typically sought when the sale proceeds do not cover the outstanding debt. However, not all states allow deficiency judgments, and specific procedures must be followed to obtain one.