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 Minnesota, if a property is foreclosed upon and the sale does not cover the outstanding mortgage balance, the lender may seek a deficiency judgment for the remaining balance from the borrower. This is known as a deficiency balance or mortgage deficiency. Minnesota law allows lenders to pursue deficiency judgments after foreclosure, but there are specific procedural requirements and limitations. For example, the lender must bring the action for a deficiency judgment within a certain time frame after the foreclosure sale. Additionally, the amount of the deficiency judgment may be limited by the fair market value of the property at the time of the sale. If a borrower files for Chapter 7 or Chapter 13 bankruptcy, the deficiency judgment may be discharged, meaning the borrower would no longer be responsible for the debt. It is important for borrowers facing foreclosure in Minnesota to understand their rights and obligations under state law, and they may wish to consult with an attorney to explore their options and any defenses they may have against a deficiency judgment.