Post-Foreclosure Deficiency Judgments in Washington

If you live in Washington State, chances are that your home is secured by a deed of trust rather than a mortgage. This means that the document securitizing your loan has a ‘power of sale’ clause which authorizes a third party trustee to sell your home in the event that you default on your mortgage and fail to “cure” the default in accordance with the Washington Deeds of Trust Act. This process is known as a ‘non-judicial’ foreclosure, and it is the primary method of foreclosure used by lenders in Washington state.

You (the borrower) and your lender (the beneficiary) both give up some rights in a non-judicial foreclosure. For instance, unless you bring an action in court against your lender and trustee in strict accordance with the Deeds of Trust Act, you will waive your right to defend against the foreclosure of your home: you don’t automatically get your day in court as you would if your lender had to foreclose its interest in your home through the court system.

However, your lender gives up something too. In Washington state, lenders can very rarely get what’s known as a ‘deficiency judgment’ if it opts to foreclose non-judicially. In simple terms, a deficiency judgment is a judgment for the difference between what you owe on your note and what the trustee is able to sell your home for at trustee sale. In times like these when the fair market value of many homes is well below what is owed for them, a deficiency judgment is a scary prospect.

The Washington Deeds of Trust Act severely limits your liability for a deficiency judgment if your home is sold at trustee sale. First and foremost, if your primary residence is sold at trustee sale, your lender can never get a deficiency judgment against you.

If you are the owner of a secondary residence or investment property, your lender can get a deficiency judgment, but only for the following:

a) any decrease in the fair value of the property caused by waste to the property committed by the borrower after the deed of trust is granted, and
b) for the wrongful retention of any rents, insurance proceeds, or condemnation awards by the borrower that are otherwise owed to the lender.

The aforementioned restrictions do not apply to junior lien holders.

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