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 Tennessee, 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 pursuing a deficiency balance or mortgage deficiency. Tennessee allows lenders to obtain deficiency judgments following both judicial and non-judicial foreclosures. However, the pursuit of a deficiency judgment must be within certain time frames and is subject to the fair market value of the property. Specifically, under Tennessee law, the deficiency judgment cannot exceed the difference between the total debt owed and the fair market value of the property at the time of sale. Additionally, the lender must initiate action for a deficiency judgment within 2 years of the foreclosure sale. Borrowers should be aware that the terms of the original mortgage agreement and state laws will influence the lender's ability to seek a deficiency judgment.