Also known as: deficiency judgements · deficiency judgments · deficiency decree
Written by attorneys · grounded in primary & secondary sources — see below
A judgment for the amount by which a secured obligation exceeds the proceeds realized from the sale of the collateral. The secured party may obtain the judgment against any person personally liable on the obligation unless a statute prohibits or limits the remedy.
Denise Donovan borrowed $200,000 from a bank secured by a mortgage on her home. After default the bank foreclosed and the property sold at auction for $140,000. The bank now sues Donovan personally for the $60,000 shortfall plus costs.
Demetrius Douglas defaulted on a purchase-money mortgage in a state that bars deficiency judgments after foreclosure. The lender obtained a federal diversity judgment for the shortfall but the court refused to enter it because state law prohibited the remedy.
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Doris Duffy defaulted during a statewide mortgage moratorium enacted to protect debtors. The lender foreclosed but was barred from pursuing a deficiency judgment against Duffy until the moratorium period ended.
A mortgagee may obtain a deficiency judgment when the foreclosure sale price is less than the mortgage obligation. The judgment is for the difference and may be sought against any person personally liable on the obligation.
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Yes. State statutes may prohibit or restrict deficiency judgments after foreclosure of purchase-money mortgages or after power-of-sale foreclosure. Some states also require the deficiency to be calculated using fair market value rather than the sale price.
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Any surplus after payment of the debt and costs is distributed first to junior lienholders in order of priority and then to the mortgagor.
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In most jurisdictions the mortgagee may sue on the personal obligation first and later foreclose, or foreclose first and then seek a deficiency for any unpaid balance.
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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…