Well, in a nutshell, when a foreclosed property doesn't sell for enough money to pay off the foreclosed mortgage, which could also be a result of declining property value since the mortgage was taken out, we end up with what we call a deficit, or shortfall in lender terminology, which is a difference between the foreclosure sale proceeds and the amount that the borrower in default still owes the lender, a deficiency.
When this happens, the court might award the lender a judgement against the debtor for the difference or the amount of the deficiency.
This is what we call a deficiency judgement.
There are cases where the states place restrictions on the rights of the lenders to pursue or obtain deficiency judgements against the borrower or mortgagor.
As an example, in some states the deficiency judgement is prohibited if the borrower secured a mortgage on a homestead property, or, that is to say, their personal residence.
Some states even prohibit a deficiency judgement on a purchase-money mortgage or a mortgage given by a buyer directly to the seller.
Check with an attorney or your local government to see how the laws regarding a deficiency judgement apply in your state.
How does the deficiency judgement work in your state and how have you seen it applied?
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