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 California, the ability of a mortgage lender to pursue a deficiency balance following a foreclosure is significantly restricted. Under California's anti-deficiency laws, for a purchase money mortgage on a residential property of up to four units, the lender cannot pursue a deficiency judgment after a non-judicial foreclosure. This means that if the property is sold at a foreclosure sale for less than the outstanding mortgage balance, the lender cannot claim the remaining balance from the borrower. However, if the foreclosure is judicial, which is less common, the lender may seek a deficiency judgment, but this is subject to certain limitations and procedural requirements. Additionally, if the loan has been refinanced, or is a home equity line of credit, different rules may apply, and the lender might be able to seek a deficiency judgment. As for bankruptcy, both Chapter 7 and Chapter 13 can potentially discharge a deficiency judgment, but specific circumstances of the debtor's financial situation and bankruptcy proceedings will determine the outcome.