What is a Deficiency Judgment

Deficiency judgment is defined by Merriam-Webster as a “judgment for the balance of a debt after the security has been realized and the proceeds applied to payment.”

This “judgment for the balance of a debt” is a consequence of either a foreclosure or a short sale.

In a foreclosure process, if your home is auctioned or sold in a public sale in the amount less than the total amount you owe on your mortgage loan, a deficiency judgment could be pursued against you by the lender.

Pending foreclosure proceedings, your lender may opt for a short sale. In this case, you can hire a real estate agent to find a buyer for the short sale. This buyer will make an offer to your lender. If your lender accepts the offer, a short sale then takes place. In a short sale, if your home is sold at the amount below the total amount you owe on your mortgage loan, a deficiency judgment could still be filed against you by your lender.

In a foreclosure or short sale, therefore, you lose not only your home but your lender can also pursue a deficiency judgment against you. However, there are exceptions to this deficiency judgment.

Unlike conventional short sales, short sales that are under the Home Affordable Foreclosure Alternatives (HAFA) program are exempted from deficiency judgment. This means that after the HAFA short sale, you are not liable for the amount that falls “short” of the amount you still owe.

While some states prohibit deficiency judgments, other states allow this practice.