When someone takes out a home loan in Alaska, the bank typically requires the borrower to sign a deed of trust. The deed of trust provides the bank with the right to sell the home at a foreclosure sale if the borrower defaults (doesn't keep up with the loan payments). The bank then applies the money from the foreclosure sale towards paying off the loan. But, if the foreclosure sale price isn’t enough to repay the loan in full, the bank might—in some circumstances in Alaska—come after the borrower for the difference.
Foreclosure Procedures in Alaska
Alaska foreclosures are usually nonjudicial, though a bank could choose foreclose through a judicial process. In a nonjudicial foreclosure, a bank must complete certain out-of-court steps described in Alaska's state laws in order to complete the foreclosure. But with a judicial foreclosure, a bank has to file a lawsuit against the borrower to foreclose.
Nonjudicial foreclosure overview. In Alaska, a bank hires a third party—called a “trustee”—to handle the nonjudicial foreclosure process. The trustee must provide two notices about the foreclosure:
- a notice of default, which the trustee mails or personally delivers to the borrower, and
- a notice of the foreclosure sale, which is published in a newspaper and online, as well as posted publicly. (Learn more about the notices in an Alaska nonjudicial foreclosure.)
After providing these notices within the required time frames, the trustee can sell the home at a foreclosure sale.
Judicial foreclosure overview. In a judicial foreclosure, a bank files a lawsuit against a borrower in court. If the borrower doesn’t file an answer with the court, the bank automatically wins the case by default and gets a default judgment. Though, if the borrower files an answer, the court will review the evidence and decide the case. If the court decides the foreclosure should go forward, the judge enters a judgment against the borrower. The judgment is the legal document that gives the bank the right to sell the home at a foreclosure sale. (Learn more about the differences between judicial and nonjudicial foreclosures.)
What Are Deficiency Judgments?
If a property sells at a foreclosure sale for less than the borrower owes the bank, the difference is called a deficiency. For example, suppose Allen's mortgage debt is $100,000. Allen gets into financial trouble and can’t make his mortgage payments to the bank. The bank then forecloses. At the foreclosure sale, Allen’s home sells to a new owner for $80,000, which means the deficiency is $20,000.
Some states allow a bank to get a personal judgment—called a deficiency judgment—against a borrower in the amount of the deficiency. In the above example, that's $20,000. After the bank gets a deficiency judgment from a court, the bank may typically garnish the borrower’s wages or levy the borrower’s bank account to collect the deficiency.
Alaska Deficiency Judgments: Allowed in Judicial Foreclosures
Under Alaska law, a bank cannot get a deficiency judgment after a nonjudicial foreclosure. But if a bank forecloses through the court system, the bank can ask the court for a deficiency judgment against the borrower.
If you're facing a judicial foreclosure in Alaska and want to learn about possible ways to avoid paying a deficiency, like by filing for bankruptcy, consider consulting with a foreclosure attorney or bankruptcy attorney. If you are facing a judicial or nonjudicial foreclosure and would like to learn about ways to avoid a foreclosure, like with a modification, forbearance agreement, repayment plan, short sale, or deed in lieu of foreclosure, consider talking to a foreclosure attorney or a HUD-approved housing counselor.