We are in a state that allows us to pursue the borrower in the event of a deficiency if we foreclose, so we typically check the second box in this section (Liability after Foreclosure pg 5) on the CD. What are the thoughts on if we should reissue the CD if during a post closing audit it is noted that the first box was checked? Reissue because of clerical error or not reissue?

What state are you in?

I am interested in this topic as well. We [in Georgia] can pursue a deficiency judgement, but it requires certain legal procedures to do so. If we don't follow them correctly, you could have protections, if my reading is correct...because I've not had a real clear DO IT THIS WAY, I've been checking "may" because it is somewhat 'open-ended' and is true, at least in my opinion...because if proper steps are not followed you 'may' have protections.

Box 2 just seems so closed-ended, I've not been truly comfortable with it.

Opinions would be appreciated.. including differences among types of loans...1-4 family vs land [I could see more protections for a Primary Residence, for instance than land] Is there any real difference?

This is a more complex issue than just on the surface. In Texas for example, a creditor can go after the deficiency. So you would think the answer is that State law does not protect you. But if you dig further into the law, the borrower can petition the court and reduce the deficiency based on fair market value of property at the time of sale, so the answer is really State law may protect you.

38(p)(3) Liability after foreclosure.

1. State law requirements. If the applicable State law affords any type of protection, other than a statute of limitations that only limits the timeframe in which a creditor may seek redress, § 1026.38(p)(3) requires a statement that State law may protect the consumer from liability for the unpaid balance.

And unless I'm sadly mistaken, that resembles our law as well...which is why I feel safer using 'may' protect than 'will not'. At least 'may' is 'subjective'.

Tennessee

Title 35 Fiduciaries And Trust Estates
Chapter 5 Judicial or Trust Sales


Tenn. Code Ann. § 35-5-118 (2016)

35-5-118. Deficiency judgment sufficient to fully satisfy indebtedness on real property after trustee's or foreclosure sale.

(a) In an action brought by a creditor to recover a balance still owing on an indebtedness after a trustee's or foreclosure sale of real property secured by a deed of trust or mortgage, the creditor shall be entitled to a deficiency judgment in an amount sufficient to satisfy fully the indebtedness.

(b) In all such actions, absent a showing of fraud, collusion, misconduct, or irregularity in the sale process, the deficiency judgment shall be for the total amount of indebtedness prior to the sale plus the costs of the foreclosure and sale, less the fair market value of the property at the time of the sale. The creditor shall be entitled to a rebuttable prima facie presumption that the sale price of the property is equal to the fair market value of the property at the time of the sale.

(c) To overcome the presumption set forth in subsection (b), the debtor must prove by a preponderance of the evidence that the property sold for an amount materially less than the fair market value of property at the time of the foreclosure sale. If the debtor overcomes the presumption, the deficiency shall be the total amount of the indebtedness prior to the sale plus the costs of the foreclosure and sale, less the fair market value of the property at the time of the sale as determined by the court.

(d) (1) Any action for a deficiency judgment under this section shall be brought not later than the earlier of:

(A) Two (2) years after the date of the trustee's or foreclosure sale, exclusive of any period of time in which a petition for bankruptcy is pending; or

(B) The time for enforcing the indebtedness as provided for under §§ 28-1-102 and 28-2-111.

(2) Nothing contained in this section shall be construed as limiting a person entitled to bring such action from electing to sue on an indebtedness in lieu of, prior to, or contemporaneously with enforcement of a deed of trust or mortgage.

Unless I have misunderstood something we should be checking the second box for the Liability disclosure. "State law does not protect you from liability for the unpaid balance". Correct?

I did a robust analysis of this topic across all 50 states, but when I was dismissed from my previous employer, I was unable to pull the spreadsheet off the computer before I left. Sucks.

rtaylor - from the code:

deficiency judgment shall be for the total amount of indebtedness prior to the sale plus the costs of the foreclosure and sale, less the fair market value of the property at the time of the sale.

38(p)(3) Liability after foreclosure.

1. State law requirements. If the applicable State law affords any type of protection,