How do deficiency judgments work in Texas?

 
Texas is a “deficiency judgment” state, meaning that lenders have the right to sue a borrower for the loss associated with a foreclosure.  Some states, like California, do not allow deficiency judgments. 
 
In Texas, once a lender has successfully sold the asset in a foreclosure auction, they are not automatically awarded a deficiency judgment against the borrower.  The lender must take additional legal action to obtain a deficiency judgment.
 
First, the mortgage lender must file a motion for deficiency after the foreclosure sale.  At an evidentiary hearing, the lender must present evidence of the deficiency, which means they must demonstrate that the property’s value on the sale date was less than the note value.  The lender can do this either through an appraisal or the county tax assessed value.  Regardless, they must prove to the court that there was a shortfall. 
 
The borrower could also present an appraisal to the court to defend the value and build a case that there was no deficiency or the deficiency is less than the lender claims. 
 
A judgment will only be awarded if the lender can prove a deficiency existed.  Once a judgment is awarded, the lender is faced with an uphill battle to collect on the judgment, which can be done either through garnishments or bank account levies.  Borrowers will frequently file bankruptcy to wipe away the deficiency judgment.
 
Whether a lender pursues a deficiency judgment or not, it is a mutual hassle for both borrower and lender.  This is why it is much better to avoid foreclosure and negotiate away a potential deficiency to avoid costly legal fees and additional damage to a borrower’s credit. 
 
If you are faced with being sued for a mortgage deficiency, you should hire an attorney to assist with a legal strategy to either defeat the deficiency claim or facilitate a settlement for substantially less than the total outstanding balance owed. 

If you have any further questions about deficiency judgments, please contact us.