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 Nevada, if a property is foreclosed upon and the sale does not cover the outstanding mortgage balance, the lender may pursue a deficiency judgment against the borrower for the remaining amount. Nevada Revised Statutes (NRS) 40.455 to 40.459 outline the process and limitations for obtaining a deficiency judgment after a foreclosure sale. Notably, for residential properties under a certain size and used as the homeowner's primary residence, the lender must apply for the deficiency judgment within six months of the foreclosure sale. Additionally, the amount of the deficiency judgment may be limited to the difference between the mortgage balance and the fair market value of the property at the time of sale, rather than the actual sale price. However, lenders may not seek a deficiency judgment for certain types of residential loans, such as those that are 'nonrecourse' by law. 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 deficiency balance.