What is a deficiency judgment?

A deficiency judgment is a legal ruling that allows a lender to seek payment from a borrower for the remaining balance owed on a mortgage after the property has been sold at foreclosure. This situation arises when the proceeds from the sale of the property are insufficient to cover the total amount of the loan. The lender, in this case, can file a lawsuit to obtain a deficiency judgment, which legally compels the borrower to repay the remaining debt. This process serves as a protective measure for lenders to recover losses resulting from borrowers defaulting on their loans.

Understanding deficiency judgments is important for both borrowers and lenders, as it illustrates the potential financial obligations that can arise even after a property has been foreclosed upon.