Can the lender sue me after foreclosure in North Carolina?
Sometimes. If the foreclosure sale brings less than you owe, the lender may be able to sue for the difference — a deficiency judgment. Whether it can depends on the type of loan and what the house was worth.
When the lender cannot
Seller-financed purchase loans
If the seller financed your purchase and the loan is secured by that house, no deficiency is allowed.
N.C.G.S. 45-21.38
Certain nontraditional home loans
Loans on a primary residence that allowed deferred payments or negative amortization, and some higher-rate loans, are also protected.
N.C.G.S. 45-21.38A
A written waiver
If a short sale or deed in lieu approval says the balance is waived, the lender cannot come back for it. Get it in writing.
When the lender can, and your defense
Other loans
For most other mortgages, including many refinances and second mortgages, a deficiency is possible.
The fair value defense
If you are sued, you can argue the house was worth more than the auction price. If you prove it, the deficiency is measured against the true value, not the sale price.
N.C.G.S. 45-21.36
The deadline
The lender generally has one year from delivery of the foreclosure deed to sue for a deficiency.
N.C.G.S. 1-54(6)
Second mortgages
A foreclosure by the first lender wipes out the second lien on the house, not the debt. The second lender may still try to collect.
How to avoid a deficiency
Sell for enough to pay the loan off, negotiate a short sale or deed in lieu with a written waiver, or talk to an attorney about bankruptcy. All of these work best before the auction. Your options compared.
Frequently asked questions
Do most North Carolina lenders sue for a deficiency?
It varies by lender and loan. Many do not, but you should not count on it, especially with a second mortgage or a large shortfall.
How long does a lender have to sue after foreclosure in NC?
Generally one year from the date the foreclosure deed is delivered to the buyer.
Does a short sale protect me from a deficiency?
Only if the approval letter waives the balance in writing. Read it before you close.
General information for North Carolina homeowners. It is not legal, tax or financial advice. Terri Lombardo is a licensed real estate broker, not an attorney or tax adviser.
Free HUD-approved housing counseling is available to North Carolina homeowners through the NC Housing Finance Agency on 1-888-442-8188.
Worried about owing money after foreclosure?
Tell us about the loans on the house and roughly what it is worth. We will tell you which options can close the balance out.
Serving Charlotte and the surrounding counties.