Also known as: deficiency decrees · deficiency judgment
Written by attorneys · grounded in primary & secondary sources — see below
A judgment awarding a mortgagee the amount by which a secured debt exceeds the proceeds of a foreclosure sale of the mortgaged property. The judgment permits the mortgagee to pursue the mortgagor or other personally liable party for the shortfall after the sale.
Darrell Duncan borrowed from a bank and gave a mortgage on his warehouse. After default the bank foreclosed and the sale brought less than the remaining balance. The bank obtained a deficiency decree against Duncan for the difference and enforced it against his other assets.
Dolores Diaz sold her mortgaged farm to a buyer who took title subject to the mortgage but did not assume the debt. After foreclosure produced a shortfall the lender obtained a deficiency decree against Diaz personally because she had signed the original note.
Derek Douglas conveyed his mortgaged office building to a company that expressly assumed the loan. When foreclosure left a deficiency the lender obtained a deficiency decree against the company for the shortfall based on its assumption agreement.
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A mortgagee may obtain a deficiency decree when the foreclosure sale price falls short of the mortgage obligation. The decree awards the difference and allows collection from any party personally liable on the debt.
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No. The original borrower remains personally liable on the note unless the lender expressly releases the borrower or agrees to a novation. A deficiency decree may still be entered against the original borrower after foreclosure.
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The deficiency equals the mortgage obligation minus the foreclosure sale price, subject to a fair-market-value determination when requested by the deficiency defendant. The greater of the sale price or fair market value reduces the deficiency.
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Yes. Deficiency and surplus rules are governed by state law, which may restrict or abolish deficiency judgments after foreclosure.
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…affect the enforcement of the right as given by the State”). Just as Erie precludes a federal court from entering a deficiency judgment when a State has “authoritatively announced that [such] judgments cannot be secured within its borders,” Angel v. Bullington , so too Erie should prevent a federal court from awarding…