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 New York, if a property is foreclosed 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 a deficiency balance. However, New York has specific procedures and limitations regarding this. The lender must file a motion for a deficiency judgment within 90 days after the foreclosure sale. Additionally, the amount of the deficiency is limited to the difference between the mortgage debt and the higher of either the foreclosure sale price or the fair market value of the property. New York also has a 'one action rule,' which means the lender must choose between pursuing a foreclosure or suing for the full mortgage debt, but cannot do both. Borrowers should be aware that certain protections may apply, such as those for high-cost or subprime loans, and should consult with an attorney to understand their rights and obligations under New York law.