If you lose your Arkansas home in a foreclosure, you might think that’s the end of the ordeal. But if the foreclosure sale price is less than the amount you owed on your mortgage loan, the bank might come after you for a "deficiency judgment." Read on to get the lowdown on how Arkansas foreclosures work and how long you have to worry about the bank possibly chasing you down for more money after a foreclosure.
How Arkansas Foreclosures Work
Foreclosures in Arkansas are usually nonjudicial, which means the bank doesn’t have to ask a court for permission to sell the home at a foreclosure sale. Instead, the bank follows a set of out-of-court steps and then sells the home. Sometimes, though, a bank will choose to foreclose through the courts in what’s called a “judicial” foreclosure. (Learn more about how nonjudicial and judicial foreclosures generally work.)
Deficiency Judgments: Owing Money After Foreclosure
If you fall behind in your mortgage payments and the bank sells your property a foreclosure sale, the sale price might be less than the full amount you owe on the mortgage. The difference between these two amounts is the deficiency. For example, suppose Alice goes through a foreclosure. Her home sells to a new owner at a foreclosure sale for $150,000. Unfortunately, Alice owed $200,000 to the bank at the time of the sale. The deficiency in this example is $50,000.
In some states—including Arkansas as you’ll learn in more detail below—a bank can get a personal judgment against a borrower for the amount of the deficiency. The personal judgment is called a deficiency judgment. The bank may then use its usual collection techniques, like garnishing wages or levying a bank account, to collect the deficiency judgment.
Deficiency Judgments Are Allowed in Arkansas
If an Arkansas foreclosure sale doesn’t bring in enough money to repay the mortgage loan, a bank can get a deficiency judgment against the borrower.
Deficiency judgments after nonjudicial foreclosures. Under state law in Arkansas, a bank has 12 months after the foreclosure sale to file a lawsuit asking a court to grant a deficiency judgment. The deficiency judgment is limited to the lesser of the total amount owed on the mortgage—including interest, costs, and fees—minus:
- the fair market value of the property, or
- the foreclosure sale price.
If 12 months goes by and the bank doesn’t file a suit against you for the deficiency, you’re in the clear.
Deficiency judgments in judicial foreclosures. In a judicial foreclosure, a bank may recover the full amount of the deficiency.
If you’re behind in your mortgage payments and want to learn about ways to fight a foreclosure or avoid a foreclosure altogether—like with a mortgage modification, short sale, or deed in lieu of foreclosure—consider talking to a foreclosure attorney or a HUD-approved housing counselor. If a bank has already obtained a deficiency judgment against you and you want information about whether you can discharge (eliminate) your liability for the debt by filing for bankruptcy, consider talking to a bankruptcy attorney.