For many homeowners in danger of foreclosure, their biggest concern is about the possibility of a deficiency judgment after the foreclosure and public auction of the property. A foreclosure deficiency judgment happens when a borrower defaults on a promissory note to the lender. A promissory note is a written promise to repay a loan or debt under specific terms, usually at a specific time, through a set series of payments. In real estate, this is usually a mortgage payment or a trust deed. If you have defaulted on a note to your lender, the bank can not only foreclose upon your home, but if the property sells at auction for less than the amount you owe, the lender can sue you in a mortgage deficiency judgment for the rest of the money. The deficiency is the difference between the fair market value of the home and the amount received. Most foreclosed homes sell for less than their true value.

Not all states allow lenders to sue homeowners after the foreclosure process has ended; take the time to review the foreclosure state laws where you live before you worry about a deficiency judgment. Also, there are many reasons why banks and mortgage companies are reluctant to pursue foreclosure deficiency judgments. Since you have been unable to make your mortgage payments, it is unlikely that you would readily have at hand the money to pay the bank, especially if you’ve lost your job or have suffered some other financial hardship. And the process of suing a homeowner will cost the lender more money to hire attorneys to take you back to court, and it will take time to try and collect on the deficiency judgment.

Sometimes when foreclosure proceedings are about to begin on a home, the bank decides to do a short sale, where it hires a real estate agent to sell the property for less than the amount owed. The home is then sold at a loss to the bank, but that still may be preferable to going after the homeowner for more money.

To avoid even having to think about deficiency judgments, it pays to be proactive if you find yourself unable to meet your financial obligations. Don’t be afraid to talk with your lender or a foreclosure counselor about alternatives such as lower payments or a loan modification.