What is a deficiency judgment?

A deficiency judgment is a legal claim that a lender can make against a borrower in situations where the proceeds from a foreclosure sale do not fully cover the outstanding balance of the mortgage loan. Essentially, when a property is foreclosed upon and sold at auction, the sale price may be less than what the borrower owes on their mortgage. In such cases, a deficiency judgment allows the lender to pursue the borrower for the remaining amount, which is known as the deficiency.

This process typically occurs after a foreclosure, and it serves as a way for lenders to recoup losses when the sale of the property does not satisfy the full loan debt. The judgment can result in additional financial liability for the borrower, leading to wage garnishments or bank levies if the lender is successful in further legal actions.

Understanding deficiency judgments is crucial for real estate professionals, as they can impact the financial well-being of borrowers following foreclosure and have implications for real estate transactions and lending practices.