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 Michigan, if a property is foreclosed upon 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. Michigan law allows lenders to pursue deficiency judgments following both judicial and non-judicial foreclosures. However, there are certain limitations and procedural requirements that must be followed. For instance, after a non-judicial foreclosure, the lender must file a lawsuit to obtain a deficiency judgment within a specific time frame, typically within one year of the foreclosure sale. The amount of the deficiency judgment may also be limited to the difference between the fair market value of the property at the time of sale and the outstanding loan balance. Borrowers have the right to contest the deficiency amount and present evidence regarding the property's value. It's important for individuals facing foreclosure in Michigan to consult with an attorney to understand their rights and any potential liability for a deficiency balance.