Washington’s anti-deficiency laws are meant to protect homeowners from facing foreclosure. This law states that the lender cannot seek repayment of their loan if the debtor’s home or property sells for less than what is owed. This is particularly important for nonjudicial foreclosures, which are the most common in Washington.
According to Washington State law (Revised Code of Washington § 61.24.100), lenders cannot pursue deficiency judgments after a nonjudicial foreclosure, meaning homeowners are not left with extra debt after losing their home. However, there are also exceptions to these cases. If a lender chooses a judicial foreclosure, they may still collect unpaid debt from the homeowner.
If you are undergoing foreclosure, it is important that you understand your rights as well as these laws. A real estate lawyer in Olympia, WA, from a reputed law firm, can provide the guidance you need. They can also help negotiate with lenders or represent you in court if needed.
How does foreclosure work in Washington?
In Washington, foreclosure happens when an individual fails to make mortgage payments. The lender can start a judicial or non-judicial foreclosure depending on the loan type. However, regardless of the type, the lender is required to follow all the legal steps. This includes sending the homeowner a notice of default.
Judicial foreclosure
In a judicial foreclosure, the lender files a lawsuit against the borrower in court. This legal action allows the lender to formally request a foreclosure due to the borrower’s inability to make payments. The borrower is sued and given the opportunity to respond and defend themselves in court. If the court sides with the lender, the foreclosure takes place.
Non-judicial foreclosure
On the other hand, non-judicial foreclosure does not involve the court and is the most common method in Washington. The lender sends the homeowner a notice of default, the same as in judicial foreclosure. However, they can sell the property through a trustee. The trustee follows the same legal steps, including giving a waiting period to the homeowner.
The homeowner has the time to remedy their default. If they fail to do so, the trustee can continue with the foreclosure sale of the property.
How Washington’s anti-deficiency laws work
Under Washington law, when a homeowner fails to make mortgage payments and the lender conducts a non-judicial foreclosure, they cannot seek deficiency judgments. Deficiency judgments are when a property is sold for less than the amount owed to the lender, and the lender attempts to seek the remaining amount from the homeowner.
Exceptions and limitations to anti-deficiency protections
While Washington law generally prohibits deficiency judgments, there are certain exceptions. One of the common situations is when a guarantor is involved. Lenders can seek deficiency judgments against the guarantor. For example, if a guarantor had signed a personal guarantee for the mortgage, the lender gets the right to seek a deficiency judgment.
Another exception is during judicial foreclosures, where lenders can seek deficiency judgments against borrowers if the court permits it.
Moreover, the laws are different for residential and commercial properties. While the Washington law protects residential property owners or homeowners from deficiency judgments, the protection does not extend to commercial property owners.
Lenders can pursue deficiency actions against commercial property borrowers after both non-judicial and judicial foreclosures.
Another exception includes refinanced loans or second mortgages. These factors complicate things further. Generally, the state does not protect one from deficiency judgments after a non-judicial foreclosure for second mortgages or home equity lines of credit (HELOCs). This can leave borrowers vulnerable to more debt even after losing their homes.
Are you about to lose your home?
Losing your home, especially your primary residence, can be heartbreaking. You may be worried about your future and family. To ensure that your lender does not take advantage of your lack of legal knowledge or expertise, hire a real estate lawyer in Washington today!