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 Hawaii, if a property is foreclosed and the sale does not cover the outstanding mortgage balance, the lender may pursue a deficiency judgment against the borrower for the remaining debt. Hawaii Revised Statutes §667-1.5 allows lenders to seek deficiency judgments following a nonjudicial foreclosure process, but they must do so within three months after the sale of the property. However, for judicial foreclosures, the timeline and process may differ, and lenders have up to six months after the confirmation of the sale to file for a deficiency judgment. It's important to note that certain protections exist for borrowers, such as the anti-deficiency law for purchase money mortgages on residential property, which can limit the lender's ability to obtain a deficiency judgment under specific circumstances. If a borrower files for Chapter 7 or Chapter 13 bankruptcy, the deficiency judgment may be discharged, releasing the borrower from the obligation to pay the remaining balance. Borrowers facing foreclosure or a deficiency judgment in Hawaii should consult with an attorney to understand their rights and options under state law.