I Promise to Pay: How a Bank can get your Money Even After Your Home is Sold at a Foreclosure Sale

August 8th, 2014
August 8th, 2014


(Image from the South Florida Law Blog)

Foreclosure. It was a relatively rare term just a few years ago but as we all know, with the collapse of the economy and the burst of the housing “bubble,” came the increase of foreclosures and bank-owned properties all over the United States.

In 2013, approximately 462,970 homes were repossessed by banks in the United States.  Luckily, the average number of foreclosures has decreased in many states. Unfortunately, Maryland has not fared as well. In 2013, Maryland reported an increase in its foreclosure sales by 117%! This means that defaults, short sales, and foreclosures are still a very real issue for many Marylanders.

However, the bigger question isn’t what happens if you lose your house to foreclosure; it’s what happens after a foreclosure. Many people believe that once their house is sold at a foreclosure sale, then their issues are over.  Sure, their credit is damaged and they might not be able to buy another house for a few years but for the time being, their financial woes related to owning their home are over.  Unfortunately, that isn’t usually the case.

When you purchase a home, you sign a Promissory Note stating to the bank that you promise to pay a certain amount of money.  The Note doesn’t say you promise to pay for as long as you own the home, just that you promise to pay!  More often than not, homes that go into foreclosure are worth less than what is owed on the Note; the common term that is used to describe this scenario is “underwater.”  This means that when the bank attempts to sell the property at a foreclosure sale, it is rare that a third party purchaser will buy the property and the bank oftentimes repossesses the home.  When this happens, there is usually a deficiency.  This occurs when the amount of money owed to the bank is not satisfied by the sale of the home at a foreclosure sale.

For example, Jane Doe owes $200,000.00 on her condo but the appraised value is only about $150,000.00.  At the foreclosure sale, the bank purchases the property for $160,000.00.  This leaves a deficiency of about $40,000.00 and guess who is responsible for the remaining debt?  That’s right, Jane Doe!

After the sale occurs, the Court approves the accounting of the foreclosure sale known as the Auditor’s Report.  Upon final ratification of the Auditor’s Report, the Bank can then petition the Court to issue a Deficiency Judgment.  Once a Judgment is obtained, the Bank can start to liquidate other assets owned by the Debtor (in our example, Jane Doe) and can even garnish her wages in order to satisfy the Judgment.  Even more disturbing is the fact that the Bank does not have to do this immediately after the foreclosure sale is over; it can wait up to three years!  Under §7-105.13 of the Real Property Article of the Maryland Annotated Code, the secured party must request a deficiency judgment within three years after the final ratification of the Auditor’s Report.  This means Jane Doe’s responsibility to pay off the remaining debt continues for many years after the foreclosure sale has occurred.

The Deficiency Judgment is a post-foreclosure remedy that is available not only to mortgage foreclosures but also to foreclosures of other lien instruments as well, including unpaid condominium or homeowner’s association fees.  That’s right; you read that correctly, a condominium or homeowner’s association can foreclose on your home to collect unpaid assessments.  This is true even if the homeowner is up to date on all of his or her mortgage payments.

This post should act as a cautionary tale to borrowers to beware before they sign on that dotted line at the closing table.  Be sure you know what you can truly afford before finalizing the purchase of a home.  If you find yourself in trouble financially, don’t wait until the last minute to notify your bank or condominium/homeowner’s association.  A secured party is more likely to work with a borrower if they are up front and honest about their financial situation early on before late fees and other costs and expenses start to accrue (which is also added to the borrower’s total debt).  Walking away from a home that is underwater isn’t necessarily the best option to get out from under the debt, despite the fact that many people believe it is.  A foreclosure on your home doesn’t just ruin your credit; ultimately, it could affect your financial situation for many years to come.


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.


The JGL Law Blog is made available by the Firm and/or the law firm publisher for educational purposes only as well as to give you general information and a general understanding of the law. The JGL Law Blog is not designed to and does not provide specific legal advice. Use of, or comments on, this Blog does not create an Attorney Client Relationship with the Firm or any of the authors of the Blog Posts.

This blog is for general informational purposes only. Joseph, Greenwald & Laake, PA is a law firm and some of the information on the blog relates to legal topics. Joseph, Greenwald & Laake, PA does not offer or dispense legal advice through this blog or by e-mails directed to or from this site. By using the blog, the reader agrees that the information on this blog does not constitute legal or other professional advice and no attorney-client or other relationship is created between the reader and Joseph, Greenwald & Laake, PA or its attorneys. The blog is not a substitute for obtaining legal advice from a qualified attorney licensed in your state. The information on the blog may be changed without notice and is not guaranteed to be complete, correct or up-to-date. While the blog is revised on a regular basis, it may not reflect the most current legal developments. The opinions expressed at or through the blog are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney. The JGL Law Blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

To ensure compliance with requirements imposed by the U.S. Internal Revenue Service in Circular 230, we inform you that any tax advice contained on this site (including any links provided) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the U.S. Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.