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 New Mexico, 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. This is the amount still owed after the foreclosure sale proceeds have been applied to the mortgage debt. New Mexico law allows lenders to seek a deficiency judgment against the borrower for this amount. However, the lender must file a lawsuit within six months after the foreclosure sale if the property is residential and less than 2.5 acres. If the court grants a deficiency judgment, the lender can then attempt to collect the debt through wage garnishment or by claiming other assets of the debtor. It is important to note that borrowers have the option to discharge a deficiency judgment through Chapter 7 or Chapter 13 bankruptcy. The specifics of how a deficiency judgment is handled can be complex and may depend on the terms of the mortgage agreement and the type of property involved. Borrowers facing a potential deficiency judgment should consult with an attorney to understand their rights and obligations under New Mexico law.