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 Minnesota, 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, known as the deficiency balance. However, Minnesota law provides certain protections for borrowers. For instance, under Minnesota Statutes Section 582.30, for foreclosures by advertisement, the right to pursue a deficiency judgment is waived unless the mortgage expressly provides for a deficiency and the property is not agricultural. For foreclosures by action, the lender may seek a deficiency judgment, but the amount may be limited by the fair market value of the property, as determined by a court. Additionally, the lender must seek the deficiency judgment within a certain time frame after the foreclosure sale. Borrowers should be aware that these laws can be complex and may vary based on the specific circumstances of the foreclosure, so consulting with an attorney for personalized advice is recommended.