deficiency judgment
A court order requiring a borrower to pay the difference between what a foreclosed property sold for and the remaining mortgage balance.
Example
“After the foreclosure sale the bank pursued a deficiency judgment for the $40,000 shortfall.”
Memory Tip
DEFICIENCY — the gap between what the sale covered and what you owed. You still owe the gap.
Why It Matters
A deficiency judgment can have serious financial consequences because it means you remain legally responsible for debt even after losing your home in foreclosure. Understanding this term is crucial when facing potential foreclosure, as it determines whether your financial obligations end with the property sale or continue as a personal debt obligation.
Common Misconception
Many people assume that once their home is foreclosed and sold, they are free from the mortgage debt regardless of the sale price. In reality, in states that allow deficiency judgments, the lender can pursue additional legal action to recover the shortfall, potentially leading to wage garnishment or bank account levies.
In Practice
Suppose you owe 300,000 dollars on a mortgage and your home is foreclosed and sells for only 250,000 dollars. The lender may obtain a deficiency judgment requiring you to pay the remaining 50,000 dollars plus court costs. This judgment can then be used to garnish your wages or place a lien on future property you acquire.
Etymology
From Latin 'deficere' meaning to fail, plus Latin 'judicare' meaning to judge.
Common Misspellings
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