A deficiency balance on foreclosure—also known as a mortgage deficiency or deficiency balance—occurs when a home or property is foreclosed on and the sale proceeds are not sufficient to pay off the mortgage. The remaining balance owed on the mortgage is a deficiency balance or mortgage deficiency.

Laws vary from state to state and a state’s laws and the terms of the mortgage may determine whether the mortgage lender (bank or mortgagee) will pursue a mortgagor who defaulted on a mortgage for any deficiency balance.

In Colorado, if a property is foreclosed and the sale does not generate enough funds to cover the outstanding mortgage balance, the lender may seek a deficiency judgment against the borrower for the remaining amount. This is known as a deficiency balance. Colorado law allows lenders to pursue deficiency judgments following both judicial and non-judicial foreclosures. However, there are certain limitations. For instance, for non-judicial foreclosures, the lender must file a lawsuit to obtain a deficiency judgment within six months after the foreclosure sale. Additionally, the amount of the deficiency is limited to the difference between the fair market value of the property at the time of the sale and the outstanding loan balance. Borrowers should be aware that the terms of the mortgage agreement and state statutes will influence the lender's ability to pursue a deficiency balance. It is advisable for individuals facing foreclosure to consult with an attorney to understand their rights and obligations under Colorado law.