New York Law (NYLE) Practice Exam

When a property is foreclosed and sold for less than the judgement amount, what can the lender seek?

1. A reimbursement of all legal fees

2. A deficiency judgement for the remaining balance if it exceeds the property’s market value

3. Nothing, as they cannot recover losses

4. A new mortgage on the property

The correct answer is: A deficiency judgement for the remaining balance if it exceeds the property’s market value

In the context of foreclosure in New York, when a lender forecloses on a property, their goal is to recover the amount owed on the mortgage. If the property is sold for less than the judgment amount—meaning the total debt owed to the lender—this can result in a shortfall. In these situations, the lender has the option to pursue a deficiency judgment, which allows them to claim the remaining balance from the borrower. This is applicable when the amount recovered from the sale of the property is less than the outstanding debt. The deficiency judgment can be sought by the lender as long as the remaining balance after the sale exceeds the property's market value, demonstrating the gap between what was owed and what was recovered through sale. Legal fees can typically be recovered, but only within certain limitations dictated by the original loan agreement and state law. Seeking a new mortgage on the property is not relevant once the property has been foreclosed upon, as the borrower has already lost ownership rights. In cases where a lender cannot recover losses through a deficiency judgment, they are also unable to seek further financial compensation from the borrower. Thus, the only viable recourse available to the lender, under the correct scenario, is the deficiency judgment for any remaining amount owed post-sale