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 Maryland, if a property is foreclosed upon and the sale does not cover the outstanding mortgage balance, the lender may seek a deficiency judgment against the borrower for the remaining amount. However, Maryland law imposes certain restrictions and procedures that lenders must follow. For instance, the lender must file a motion for a deficiency judgment within three years after the final ratification of the foreclosure sale. Additionally, the amount of the deficiency judgment may be limited to the difference between the total debt owed and the fair market value of the property at the time of the foreclosure sale, not just the sale price. This is intended to prevent lenders from seeking excessively high deficiency judgments in cases where the foreclosure sale price is below the property's fair market value. Borrowers should be aware that if the lender is granted a deficiency judgment, the lender can pursue collection just like any other judgment debt.