Deficiency Judgments in Nebraska: Can the Bank Sue You After Foreclosure?
Yes, a bank can sue you for a deficiency judgment after a foreclosure in Nebraska. However, for non-judicial foreclosures, the lender only has a strict 3-month window to file the lawsuit, and the judgment amount is capped by the home's fair market value.
What is a Deficiency Judgment?
Losing a home to foreclosure is devastating, but many Nebraska homeowners are shocked to learn that the nightmare does not always end when the house is auctioned off. If your home sells at the foreclosure auction for less than the total amount you owe on your mortgage, the remaining balance is called a 'deficiency.' In Nebraska, the lender has the legal right to file a lawsuit against you to collect this remaining debt, known as a deficiency judgment. If they win, they can garnish your wages or levy your bank accounts. Fortunately, state laws provide strong defenses. You can browse our directory to find a local foreclosure defense lawyer to protect your assets.
The Strict 3-Month Statute of Limitations
If your lender used a non-judicial foreclosure (the most common type in the state, utilizing the Trust Deeds Act), they must act extremely fast to sue you. Under Neb. Rev. Stat. § 76-1013, the lender has only three months after the date of the trustee's sale to file a lawsuit for a deficiency judgment. If the auction happens on June 1st, and the bank files the lawsuit on September 2nd, the lawsuit is completely barred by the statute of limitations, and you owe nothing. This three-month deadline is one of the shortest and most protective in the country for homeowners.
The 'Fair Market Value' Limitation
Another massive protection under Nebraska law is the fair market value rule. During the Great Recession, banks would often buy back foreclosed homes at auction for artificially low prices (sometimes just $1) and then sue the homeowner for the entire massive loan balance. Nebraska outlawed this predatory tactic. Under Neb. Rev. Stat. § 76-1013, a deficiency judgment is capped at the total amount owed minus the fair market value of the property, or the actual sale price, whichever is higher.
For example, in cases like Mutual of Omaha Bank v. Murante, 285 Neb. 747 (NE Supreme Court 2013), courts emphasize that a judge must independently determine what the home was actually worth. If you owed $200,000, the bank bought the home at auction for $100,000, but an appraiser proves the fair market value was actually $190,000, the bank can only sue you for $10,000-not the $100,000 difference they claimed.
Strategic Defaults and Walkaways
Some homeowners who are severely underwater (owing much more than the house is worth) consider a 'strategic default'-intentionally walking away from the property. In states where deficiency judgments are banned, this is easier. But in Nebraska, because deficiency lawsuits are legal, a strategic default carries risk. If you are considering walking away, a lawyer can help you negotiate a Deed in Lieu of Foreclosure or a Short Sale, where you agree to hand over the property in exchange for a written waiver from the bank agreeing not to pursue a deficiency judgment later.
Judicial vs. Non-Judicial Deficiency Laws
It is vital to know which type of foreclosure the bank used, as the rules change drastically. If the lender files a formal lawsuit to foreclose (a judicial foreclosure) through courts like the Douglas County District Court, Omaha or the Lancaster County District Court, Lincoln, the rules are different.
| Type of Foreclosure | Statute of Limitations to Sue | Fair Market Value Protection? |
|---|---|---|
| Non-Judicial (Trustee Sale) | 3 Months | Yes, highly protective |
| Judicial (Court Lawsuit) | 5 Years (Generally) | Limited. Court confirms the sale price. |
Frequently Asked Questions (FAQ)
Can the bank garnish my wages for a deficiency judgment?
Yes. If the bank wins the deficiency lawsuit and obtains a formal judgment against you, they can use aggressive collection tactics, including wage garnishment and bank account levies.
How do I prove the fair market value of my foreclosed home?
If the bank sues you, your defense attorney will hire an independent real estate appraiser to evaluate what the home was actually worth on the exact day of the foreclosure auction.
Will a Short Sale prevent a deficiency judgment?
Not automatically. A short sale only prevents a deficiency if your attorney ensures the short sale agreement explicitly includes a 'deficiency waiver' clause from the lender.
Can bankruptcy wipe out a deficiency judgment?
Yes. A deficiency judgment is considered an unsecured debt. Filing for Chapter 7 bankruptcy can completely discharge and eliminate your legal obligation to pay the deficiency.
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