Personal Liability Following a Deed in Lieu of Foreclosure in New Jersey
"This makes a deed in lieu of foreclosure an attractive loss mitigation option for a defaulting homeowner in New Jersey," writes Myron C. Weinstein
September 18, 2024 at 12:00 PM
8 minute read
A mortgage debtor assumes a double risk: the risk of losing the mortgaged property for a default under the obligation secured by the mortgage, plus the risk of being saddled with personal liability under the obligation and a deficiency judgment for 20 years. But what about the mortgage debtor's personal liability after giving a deed in lieu of foreclosure? The answer is simple: If the deficiency action statutes apply, N.J.S.A. 2A:50-2 et seq.—aimed at protecting residential mortgage debtors against excessive deficiency judgments—a mortgage debtor runs no risk of personal liability for the mortgage debt. This is because the deficiency action statutes, where applicable, require a judicial mortgage foreclosure and sale first before any deficiency action can be instituted for any debt secured by a mortgage (except where the mortgage has been extinguished by the foreclosure of a prior mortgage and sale). Since a deed in lieu of foreclosure is obviously not a prior mortgage foreclosure and sale, deficiency actions are prohibited following such deeds. This makes a deed in lieu of foreclosure an attractive loss mitigation option for a defaulting homeowner in New Jersey. (See 4:64-1B(c)(2) for a qualified, residential homeowners right to participate in the Residential Foreclosure Mediation Program (includes a deed in lieu of foreclosure) "at any time prior to the sale of the property.")
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