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 Oregon, if a property is foreclosed upon and the sale does not cover the outstanding mortgage balance, the lender may be left with a deficiency balance. Oregon law allows lenders to seek a deficiency judgment against the borrower for this amount in certain circumstances. However, Oregon has an anti-deficiency statute that limits the ability of lenders to obtain deficiency judgments after a nonjudicial foreclosure of residential property. Specifically, for residential trust deeds, lenders cannot pursue a deficiency judgment after a nonjudicial foreclosure. For judicial foreclosures, the ability to seek a deficiency depends on the type of property and the circumstances of the foreclosure. If the lender does obtain a deficiency judgment, they may attempt to collect the debt through wage garnishment or other means. Debtors have the option to discharge the deficiency judgment in a Chapter 7 or Chapter 13 bankruptcy. It's important for borrowers facing foreclosure to understand their rights and obligations under Oregon law and to consult with an attorney for guidance specific to their situation.