Define: Deficiency Judgment

Deficiency Judgment

Quick Summary of Deficiency Judgment

A deficiency judgement occurs when a debtor owes money to a creditor, but the asset used as collateral for the loan does not fully cover the amount owed. This typically happens in mortgage foreclosures when the sale of the home does not cover the mortgage debt. In such cases, the creditor can obtain a deficiency judgement to recover the remaining debt. However, this is only possible in states that permit deficiency judgements, and the creditor must demonstrate that the asset was sold at a fair price.

Full Definition Of Deficiency Judgment

A deficiency judgement is a legal term used to describe the money that a creditor can receive when the assets used to secure a loan are insufficient to cover the debt owed by a debtor. This situation arises when a debtor becomes insolvent and is unable to repay the loan. For instance, if an individual takes out a mortgage to purchase a house but later becomes incapable of making the payments, the bank can repossess the house and sell it to recover the debt. However, if the sale of the house does not generate enough funds to cover the entire debt, the bank can pursue a deficiency judgement to make up for the remaining amount. To obtain a deficiency judgement, the creditor must be in a state that recognises such judgements for the specific type of debt and must demonstrate that the asset was sold at a fair price. While deficiency judgements are most commonly associated with mortgage foreclosures, they can also occur in other types of loans, including car loans or personal loans.

Deficiency Judgment FAQ'S

What is a deficiency judgment?

A deficiency judgment is a court order that requires a borrower to pay the difference between the amount owed on a loan and the amount received from the sale of the collateral used to secure the loan.

When can a deficiency judgment be issued?

A deficiency judgment can be issued when a borrower defaults on a loan and the collateral used to secure the loan is sold for less than the amount owed.

What types of loans can result in a deficiency judgment?

Any loan that is secured by collateral, such as a mortgage or a car loan, can result in a deficiency judgment if the borrower defaults and the collateral is sold for less than the amount owed.

How is the amount of a deficiency judgment determined?

The amount of a deficiency judgment is determined by subtracting the amount received from the sale of the collateral from the amount owed on the loan.

Can a deficiency judgment be discharged in bankruptcy?

In some cases, a deficiency judgment can be discharged in bankruptcy. However, this depends on the specific circumstances of the case and the type of bankruptcy being filed.

Can a deficiency judgment be negotiated or settled?

Yes, it is possible to negotiate or settle a deficiency judgment with the lender. This may involve making a lump sum payment or setting up a payment plan.

How long does a lender have to file for a deficiency judgment?

The time frame for filing a deficiency judgment varies by state and type of loan. In some states, the lender may have up to six years to file for a deficiency judgment.

Can a deficiency judgment affect my credit score?

Yes, a deficiency judgment can negatively impact your credit score and make it more difficult to obtain credit in the future.

Can a deficiency judgment result in wage garnishment?

Yes, a deficiency judgment can result in wage garnishment, which means that a portion of your wages may be withheld to pay off the debt.

Can I avoid a deficiency judgment?

The best way to avoid a deficiency judgment is to stay current on your loan payments and work with your lender if you are experiencing financial difficulties. If you do default on a loan, it is important to seek legal advice to understand your options and potential consequences.

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This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 17th April, 2024.

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Define: Deficiency Judgement

Deficiency Judgement

Definition Sources

Quick Summary of Deficiency Judgement

A deficiency judgement is a legal ruling issued by a court when the proceeds from the sale of a foreclosed property are insufficient to cover the outstanding mortgage debt and other related expenses. In such cases, the lender or mortgage holder can seek a deficiency judgement against the borrower to recover the remaining balance owed. This means that the borrower may be held personally liable for the shortfall between the sale price of the property and the total amount owed on the mortgage. Deficiency judgements can have significant financial consequences for borrowers, as they may result in wage garnishment, asset seizure, or other means of debt collection by the lender. The laws regarding deficiency judgements vary by jurisdiction, and some states have limitations or protections in place to limit the lender’s ability to pursue such judgements.

What is the dictionary definition of Deficiency Judgement?

Dictionary Definition of Deficiency Judgement

A personal judgement is levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.

n. a judgement for an amount not covered by the value of security put up for a loan or installment payments. In most US states, the party owed money can only get a deficiency judgement if he/she chooses to file a suit for judicial foreclosure instead of just foreclosing on real property. However, some states allow a lawsuit for a deficiency after foreclosure on the mortgage or deed of trust. The right to a deficiency judgement is often written into a lease or installment contract on a vehicle. There is a danger that the sale of a repossessed vehicle will be at a wholesale price or to a friend at a sheriff’s sale or auction, leaving the debtor holding the bag for the difference between the sale price and the remainder due on the lease or contract.

Full Definition Of Deficiency Judgement

A deficiency judgement (also spelled deficiency judgement) is a judgement lien against a debtor, defendant, or borrower whose foreclosure sale did not produce sufficient funds to pay the mortgage in full. This option may or may not be available to the lender, depending on whether they have made a recourse or nonrecourse loan.

The fuller New York statutory definition is this: “the whole residue, or so much thereof as the court may determine to be just and equitable, of the debt remaining unsatisfied, after a sale of the mortgaged property and the application of the proceeds, pursuant to the directions contained in such judgement, the amount thereof to be determined by the court as herein provided.

The plaintiff’s attorney (in other words, the bank’s lawyer) must make a motion to receive such a deficiency judgement. Otherwise, the amount gained from the sale shall be deemed the full amount owed, and the plaintiff has no right to collect the additional debt. However, if the parties (mortgagor and mortgagee) have already agreed in their mortgage or promissory note, then the debtor could be liable for the full amount.

A debtor who has a deficiency judgement should see an attorney for possible remedies, including bankruptcy, an exemption from creditors, an appeal, or a motion. As with all legal research sources online, Internet users should take caution before applying such advice to their own cases and perhaps should consult an attorney, barrister, or solicitor.