New York Law (NYLE) Practice Exam

If a lender's foreclosure sale yields less than the total judgment, can they seek a deficiency judgment?

1. No, because the lender accepted a sale price less than the debt

2. No, because the lender accepted a sale price less than the market value

3. Yes, in the amount of $150,000

4. Yes, in the amount of $100,000

The correct answer is: Yes, in the amount of $100,000

In situations where a lender forecloses on a property and the sale proceeds are insufficient to cover the total judgment amount, they may pursue a deficiency judgment. A deficiency judgment is a court order that allows the lender to recover the remaining balance owed after the foreclosure sale. The crucial point for determining the ability to seek a deficiency judgment lies in the fact that a lender is typically entitled to recoup any shortfall between the sale price and the amount owed on the mortgage. In New York, this is contingent upon the lender demonstrating that the property was sold in a commercially reasonable manner. In this scenario, should the foreclosure yield $100,000 less than the total debt, the lender can request a deficiency judgment for the difference, which is the shortfall amount, specified here as $100,000. This means if the total judgment was, for example, $250,000, and the sale yielded only $150,000, the lender can properly seek that deficiency amount. This reflects the principle that lenders are protected against losses incurred when a foreclosure sale does not cover the debt. The option specifying the ability to pursue a deficiency judgment for the amount of $100,000 is valid as it corresponds directly with the debt remaining after the foreclosure sale.