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 Wisconsin, 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. Wisconsin Statute § 846.165 allows lenders to obtain a deficiency judgment following a foreclosure sale, but they must adhere to specific procedures. The lender must provide notice of their intent to seek a deficiency within three months of the sale, and the action must be commenced within one year of the confirmation of the foreclosure sale. Additionally, Wisconsin has a fair value law, which means that the deficiency amount may be reduced if the foreclosure sale price was significantly lower than the fair market value of the property. Borrowers should be aware that lenders have these rights and may pursue the deficiency balance, which could result in additional financial obligations beyond the loss of the property.