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 Iowa, if a property is foreclosed upon and the sale does not generate enough funds to cover the outstanding mortgage balance, the lender may seek a deficiency judgment against the borrower for the remaining amount, known as the deficiency balance. However, Iowa law provides certain protections for borrowers. For residential properties, the lender must choose between a foreclosure that allows for the property to be sold with the possibility of a deficiency judgment, or a foreclosure that bars the lender from seeking a deficiency judgment but allows the borrower the right of redemption. This right of redemption permits the borrower to reclaim the foreclosed property by paying the sale price within a certain period after the sale. The specific process and borrower protections are detailed in Iowa Code Chapter 654. It's important for borrowers facing foreclosure in Iowa to consult with an attorney to understand their rights and obligations under the state's foreclosure laws.