What is a deficiency judgment?

A deficiency judgment is a legal ruling that occurs when a borrower defaults on a loan for property and the property is sold in a foreclosure auction for less than the outstanding balance on the loan. In this case, the lender can seek a court order to recover the remaining balance that is still owed after the auction proceeds have been deducted. This is particularly relevant if the sale of the property does not fully satisfy the debt owed by the borrower.

This concept is important in real estate and lending because it demonstrates the potential financial obligations that a borrower may still face even after the loss of the property. Understanding deficiency judgments is crucial for borrowers, as it highlights the risks of foreclosure and the possibility of continuing liability for any remaining loan balance.