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 North Carolina, 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 or mortgage deficiency. North Carolina is a recourse state, which means lenders have the right to pursue this deficiency. However, there are certain limitations and procedures that must be followed. For example, if the foreclosed property was a residential property with less than 15 acres, the lender must seek a deficiency judgment within one year of the foreclosure sale. Additionally, the amount of the deficiency judgment may be limited if the borrower can show that the foreclosure sale price was significantly below the property's fair market value. Borrowers facing a potential deficiency judgment may have legal defenses available and should consult with an attorney to explore their options.