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.

And if a mortgage lender (bank or mortgagee) files a lawsuit against a mortgagor (debtor) who defaulted on a mortgage, the lender may obtain a court judgment known as a deficiency judgment. With this judgment the lender can try to garnish the debtor’s wages or go after the debtor’s other assets for payment or satisfaction of the deficiency judgment.

A deficiency judgment may be discharged in Chapter 7 or Chapter 13 bankruptcy.

Laws vary from state to state and a state’s laws and the terms of the mortgage may determine whether the mortgage lender 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 cover the outstanding mortgage balance, the lender may pursue a deficiency balance from the borrower. Colorado law allows lenders to obtain a deficiency judgment against the borrower for the remaining balance owed. However, the right to pursue a deficiency judgment may be subject to certain limitations, such as the type of foreclosure process used (judicial or non-judicial) and the terms of the mortgage agreement. For instance, Colorado has specific timelines and procedures that must be followed for a lender to seek a deficiency judgment after a non-judicial foreclosure. If a borrower files for Chapter 7 or Chapter 13 bankruptcy, the deficiency judgment may be discharged, meaning the borrower would no longer be legally required to pay the deficiency balance. It is important for borrowers facing foreclosure in Colorado to understand their rights and obligations under state law and to consider seeking advice from an attorney to navigate the complexities of foreclosure and potential deficiency judgments.