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Real property

deficiency balance on foreclosure

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 Texas, if a property is foreclosed upon and the sale does not generate enough funds to cover the outstanding mortgage balance, the lender may have the right to seek a deficiency judgment against the borrower for the remaining amount, known as a deficiency balance. However, Texas has specific regulations that govern deficiency judgments. Under Texas Property Code Section 51.003, a lender has two years from the foreclosure sale to file a lawsuit to obtain a deficiency judgment. Additionally, the amount of the deficiency is limited to the difference between the fair market value of the property at the time of the sale and the remaining debt. This means that the lender cannot simply claim the full amount of the unpaid loan balance; the fair market value must be taken into account. It's important for borrowers facing foreclosure in Texas to understand their rights and any potential liability for a deficiency balance. An attorney can provide guidance on how these laws may apply to an individual's specific situation.

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