The state you live in and the kind of mortgage you have are big influencing factors to determine whether your wages can be garnished for mortgage debt after foreclosure. If your house has been foreclosed upon, the lender can try to sell it. If the sale price is more than you owe, then you don’t owe anything more. If the sale is less than the amount you owe, the lender may try to collect the balance from you.
First, they’ll need a document giving them permission to sell the property to settle the debt – depending on the state, this is judgment against you or a deed of trust. Some states, called judicial foreclosure states, require the lender to take you to court to obtain a judgment against you, if you do not hand over the property voluntarily. If the lender wins, the judge will determine the amount you owe in the judgment and give the lender the right to sell the property.
Other states, called non-judicial states, allow the lender to use the deed of trust typically signed when you buy the house. This document in the sale contract gives the lender the right to sell the property in the event of default, eliminating the need for the lender to sue you for a judgment in order to get permission to sell the property.
Non-judicial states typically do not allow a first-mortgage lender to collect any left over debt after the property sale. There are some exceptions typically when the debt has the potential to include debt that isn’t related to the original purchase of the house, as is the case when the property has been refinanced or contains additional (second or third) mortgages or home equity lines of credit.
Judicial states differ in whether they allow recourse or not in the recovery of left over debt after a foreclosed property is sold.
In recourse states, the leftover debt is collectible by the first mortgage lender. If the property is in one of these states, the lender can pursue the collection of the balance after the sale (e.g. by garnishing your wages).
Recourse states (at the time of this writing):
- District of Columbia
- New Hampshire
- New Jersey
- New Mexico
- New York
- Puerto Rico
- Rhode Island
- South Carolina
- West Virginia
In non-recourse states, the leftover debt is typically not collectible by the first mortgage lender and your wages cannot be garnished. There are usually exclusions, however, that allow lenders of home equity lines of credit or additional mortgages to collect the leftover debt. One way to do this is by garnishing your wages.
Non-recourse states (at the time of this writing)
- North Carolina
- North Dakota
Foreclosure laws change frequently, so be sure to double check your state’s current regulations to find out whether it is judicial or non-judicial, recourse or non-recourse.
If you live in a state that allows the lender to collect any leftover amount after the sale of a house, you still have options to avoid garnishment of your wages. A foreclosure attorney can help you find out if any exceptions apply to you or if bankruptcy is a reasonable option.