My House Sold at Auction: What Happens to My Mortgage?
If you miss your mortgage payments and your lender forecloses on your property, your house is then sold at a foreclosure auction. This has several impacts on your mortgage. A mortgage generally has two parts: the lien on your property and your obligation to repay your debt to your lender.
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Lien Elimination
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When you sign a mortgage document, you agree that your lender can take your property and sell it to pay off your loan. This is the lien portion of your mortgage. When your lender sells your property at the foreclosure auction, your lender is exercising the right that the lien gives him. After the sale, the lender no longer has a lien on the property.
Deficiency Balance
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The other part of your mortgage is your promise to pay the lender your outstanding loan amount. Even if the lien is no more, you may still have the obligation to pay off your debt. The selling price of your house at the foreclosure auction may be lower than your outstanding loan. Depending on your state laws, you may still be liable for the deficiency balance, which is the difference between the two figures.
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Bad Debt
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In some states, the lender doesn't have the right to pursue the deficiency balance. Such a loan, where the lender can't collect on deficiency balance, is known as a non-recourse loan. Most non-recourse loans are for loans that the borrowers use to buy a primary residence. If your mortgage is a non-recourse loan, your lender can't demand any more payment from you after seizing your house. Your lender has to record your loan as a loss in its financial statements.
Deficiency Judgment
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If your state laws allow lenders to pursue deficiency balance, you may have to pay your lender the amount you still owe, minus the house sale price. If the house that was sold in an auction was an investment property, you are likely liable for the deficiency balance. Your lender or a collection agency can sue you to get a deficiency judgment against you and demand payment. However, this process takes time, money and effort. Even if your loan is a recourse loan, your lender may not pursue the deficiency amount.
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