What is a deficiency judgment?

A deficiency judgment refers to a court ruling that allows a lender to claim the remaining balance owed on a loan after a property has been sold at a foreclosure auction for less than the amount owed. When a borrower defaults on a loan and the lender repossesses the property, the sale price may not cover the entire debt. In such cases, if the lender wishes to recover the deficit, they may pursue a deficiency judgment against the borrower. This legal judgment enables the lender to seek payment from the borrower’s personal assets in order to settle the outstanding debt.

Understanding the concept of deficiency judgments highlights the potential financial consequences of defaulting on a loan. Borrowers should be aware that even after the foreclosure process, they might still owe money to the lender if the property value is insufficient to cover the debt.