The FHA and deficiency judgments in California

Question:

Does the FHA pursue deficiency judgments against foreclosed homeowners in California?

Answer:

The simple answer is no: the Federal Housing Administration (FHA) does not pursue deficiency judgments against foreclosed homeowners. However, the FHA does have the right to pursue a homeowner for the unpaid balance remaining on a foreclosed home.

Homeowners under programs insured by the FHA or the U.S. Department of Veterans Affairs (VA) do not receive California anti-deficiency protection for losses sustained by these federal agencies. The federal statutory right to collect losses on FHA-insured mortgages preempts state law to the contrary. [Carter v. Derwinski (9thCir. 1993) 987 F2d 611; See Realtipedia Volume: Buying Homes in ForeclosureChapter 15: FHA and VA loan assumptions]

The Department of Housing and Urban Development (HUD), which administers FHA, may require lenders to pursue deficiency judgments. HUD states their intention is to prevent mortgagor abuse, specifically by focusing on:

• non-owner-occupant homeowners;
• those who have previously defaulted on one or more FHA-insured mortgages; or
• homeowners who have chosen to strategically default. [HUD Mortgagee Letter 89-14]

All this being said, the FHA has not exercised its right to collect on a deficiency in California in over 20 years.