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 New Jersey, if a property is foreclosed and the sale does not cover the outstanding mortgage balance, the lender may seek a deficiency judgment for the remaining balance from the borrower. New Jersey is a 'recourse' state, which means lenders have the right to pursue this deficiency balance. However, there are specific procedures and time limits the lender must follow. For residential properties, the lender must file a motion for a deficiency judgment within three months after the foreclosure sale. Additionally, the amount of the deficiency judgment may be limited if the court finds the foreclosure sale price was below fair market value. If the borrower files for Chapter 7 or Chapter 13 bankruptcy, the deficiency judgment may be discharged, releasing the borrower from the obligation to pay the deficiency. It's important for borrowers facing foreclosure in New Jersey to understand their rights and obligations under state law and to consider seeking advice from an attorney to navigate the process.