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 Rhode Island, 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. This is known as a deficiency balance or mortgage deficiency. Rhode Island General Laws § 34-27-1 governs the foreclosure process and the pursuit of deficiency judgments. The lender must adhere to specific procedures to obtain a deficiency judgment, including filing a lawsuit against the borrower within a certain time frame after the foreclosure sale. The court will then determine if a deficiency exists and the amount the borrower must pay. Borrowers should be aware that there may be defenses available to them to challenge a deficiency judgment, and they may benefit from consulting with an attorney to understand their rights and options under Rhode Island law.