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.

And if a mortgage lender (bank or mortgagee) files a lawsuit against a mortgagor (debtor) who defaulted on a mortgage, the lender may obtain a court judgment known as a deficiency judgment. With this judgment the lender can try to garnish the debtor’s wages or go after the debtor’s other assets for payment or satisfaction of the deficiency judgment.

A deficiency judgment may be discharged in Chapter 7 or Chapter 13 bankruptcy.

Laws vary from state to state and a state’s laws and the terms of the mortgage may determine whether the mortgage lender will pursue a mortgagor who defaulted on a mortgage for any deficiency balance.

In Alaska, if a property is foreclosed and the sale does not cover the outstanding mortgage balance, the lender may pursue a deficiency balance from the borrower. Alaska Statute 09.35.250 allows lenders to seek a deficiency judgment following a non-judicial foreclosure, but there are limitations. For example, if the property is a single-family dwelling and was occupied by the owner, the amount of the deficiency judgment may be limited. Additionally, Alaska has an anti-deficiency statute for deeds of trust, which can restrict lenders from pursuing deficiency judgments under certain conditions, such as when the deed of trust secures a loan on a property that was the borrower's principal residence and the loan was used to purchase the property. If a lender obtains a deficiency judgment, they may attempt to collect the debt through wage garnishment or other means. However, debtors have the option to discharge the deficiency judgment in a Chapter 7 or Chapter 13 bankruptcy. It's important for borrowers facing foreclosure in Alaska to understand their rights and obligations under state law and to consult with an attorney for guidance specific to their situation.