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 Maryland, if a property is sold at foreclosure and the sale does not cover the outstanding mortgage balance, the lender may seek a deficiency judgment for the remaining debt. Maryland law allows lenders to file for a deficiency judgment within three years after the foreclosure sale. However, the lender must first obtain an audit of the sale and a ratification of the sale by the court before pursuing the deficiency judgment. If the court grants the judgment, the lender can then take legal action to collect the deficiency from the borrower, which may include garnishing wages or seizing assets. It is important to note that certain protections may apply, such as exemptions for residential properties under certain conditions. Borrowers have the option to discharge the deficiency judgment through Chapter 7 or Chapter 13 bankruptcy, which can provide relief from the debt under federal bankruptcy laws. As laws can be complex and subject to change, it is advisable for individuals facing a potential deficiency judgment to consult with an attorney to understand their rights and options under Maryland law.