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H1057 Abolish Certain Deficiency Judgments

October 31, 2009
Mortgage Lending
Research

H1057 prohibits deficiency judgments on predatory home loans in North Carolina. A deficiency judgment can be pursued by the lender if a foreclosed home sells at auction for less than the mortgage on the home. For the increasing number of homeowners who owe more on their loan than their home is worth (upside down in their mortgage), deficiency judgments add tremendously to the hardship of losing their home. This law prohibits deficiency judgments for first-lien subprime or non-traditional loans (like payment option adjustable rate mortgages) made on or after January 1st, 2005, unless the lender takes the homeowner to court rather than use the power of sale through the clerk of the court. In court, the homeowner can raise defenses against the foreclosure that the homeowner could not raise before the clerk, which offers more protection for these homeowners. This new law does not apply to home equity lines of credit, reverse mortgages, construction loans, second liens, and manufactured homes not sold as real property.

The law also prohibits deficiency judgments on all subprime and nontraditional mortgages made after January 1st, 2010 regardless of the method of foreclosure.

Effective date: October 1, 2009, applies to actions filed after that date.