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 Montana, 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, known as the deficiency balance. Montana law, specifically Montana Code Annotated § 71-1-222, allows lenders to pursue deficiency judgments following both non-judicial and judicial foreclosures. However, there are certain limitations and procedural requirements that must be followed. For instance, after a non-judicial foreclosure sale, the lender must file a lawsuit to obtain a deficiency judgment within six months. Additionally, the amount of the deficiency judgment may be limited to the difference between the debt owed and the fair market value of the property at the time of the sale, rather than the sale price. Borrowers should consult with an attorney to understand their rights and any potential liability they may face regarding a deficiency balance after a foreclosure in Montana.