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.
Laws vary from state to state and a state’s laws and the terms of the mortgage may determine whether the mortgage lender (bank or mortgagee) will pursue a mortgagor who defaulted on a mortgage for any deficiency balance.
In Hawaii, if a property is foreclosed upon and the sale does not generate enough funds to cover the outstanding mortgage balance, the lender may be able to seek a deficiency judgment against the borrower for the remaining balance, known as a deficiency balance. Hawaii is a non-recourse state for purchase money mortgages on residential property, which means that if the mortgage was used to buy the property and the property is the borrower's primary residence, the lender cannot pursue a deficiency judgment after a non-judicial foreclosure. However, for non-purchase money mortgages or if the foreclosure is judicial, the lender may pursue a deficiency judgment. The specific rights and obligations will depend on the terms of the mortgage and the type of foreclosure process used. Borrowers facing foreclosure should consult with an attorney to understand their rights and potential liabilities under Hawaii law.