As a form of relief from some aspects of foreclosure, some states have "anti-deficiency" laws, which protect purchasers of residential real property used as primary residence.

How Anti-Deficiency Laws Work

In a typical foreclosure, if the purchaser fails to make the mortgage payment the property is foreclosed and title is obtained by the lender through a legal procedure. The property is then typically sold to pay the mortgage, and a deficiency between the sale price and the outstanding balance of the mortgage usually exists. Under anti-deficiency laws, if the mortgage is for the purchase of a dwelling occupied by the purchaser, the purchaser will not be held responsible for any deficiency. The lender can only recover the property and the proceeds of a subsequent sale. The purchaser does not pay any deficit between the sale proceeds and the outstanding loan balance. This allows the purchaser to walk away from a property without owing a deficiency judgment amount.

When Anti-Deficiency Laws Do Not Apply

Anti-deficiency laws typically provide no protection for second mortgages or home equity lines. Also, there is no protection when the property is not used as the primary residence of the purchaser.