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QUESTION: Is Washington a Recourse or Non-Recourse State?
Once the property is sold to an bona fide third party purchaser at the trustee sale, the bank is barred from collecting any deficiency on the collateral. The "cost" to the lender of availing itself of such a streamlined method of foreclosure outside of the purview of the court system is the prohibition from collecting any deficiency amount. Obviously the benefit to the buyer of a non-judicial sale, (while the credit standing of the borrower may have taken a big hit), is that he or she no longer has to worry about satisfying the debt obligation. In short, if the first position lien holder non-judicially forecloses the mortgage on the seller's residence, that lien holder cannot take a deficiency judgment.
That said, banks may also go the route of a judicial foreclosure, which allows for legal recourse. A judicial foreclosure is executed through the court system as an actual lawsuit against the homeowner. A judicial foreclosure takes it a step further than a trustee sale by allowing the bank to not only compel a sale of the property, but also providing an avenue by which the bank can obtain a deficiency judgment against the borrower for whatever balance was owed after a sale. The lender can request that the court have that sum converted into a judgment against the borrower. With a such a judgment in hand, the bank can garnish wages and pursue other avenues against the borrower’s assets--including both real and personal property.
Washington is oftentimes labeled (or mis-labeled) as a true non-recourse state because of the option available to the lender to foreclose on the property through the non-judicial process, (as well as the frequency with which they choose to do so). However, it's still beyond me as to why some lenders would elect to go the judicial foreclosure route when it is evident that the borrower simply does not have the means to cover the deficiency. If that were the case, would the borrower really have found him or herself facing foreclosure in the first instance?
In the context of the junior lien holder, lien holders who are subordinate to the foreclosing lien holder, regardless of whether the foreclosure is executed judicially or non-judicially, can STILL recover any outstanding amounts owed from the seller to the junior following a foreclosure sale, irrespective of whether it's non-judicial or judicial. However, the junior lien holder's rights do NOT take the form of a "deficiency judgment" as is the case with a first position lien holder judicially foreclosing, but a junior lien holder can, neverthless, seek recovery of the entire amount owed through other avenues.
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