Deficiency judgment
Encyclopedia
A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure
sale did not produce sufficient funds to pay the underlying promissory note
, or loan, in full. The availability of a deficiency judgment depends on whether the lender has a recourse or nonrecourse loan, which is largely a matter of state law. In some jurisdictions, the original loan(s) obtained to purchase property is/are non-recourse, but subsequent refinancing of a first mortgage and/or acquisition of a 2nd (3rd., etc.) are recourse loans.
In short, many jurisdictions hold that the loans obtained at the acquisition of a property ("purchase-money") are non-recourse, and most if not all subsequent loans are.
States that follow the title (trust-deed) theory of mortgages typically allow non-judicial foreclosure procedures, which are fast, but do not allow deficiency judgments. States that follow the lien theory of mortgages require judiciary foreclosure procedures, but allow deficiency judgments against the debtor.
It is important to note that there is a difference between a deficiency and a deficiency judgement. A "deficiency" is the difference between the amount owed on a loan and the total amount received/collected at the closing of a loan. A Deficiency Judgement is the constructive notice as well as legal and public record of that amount owed, and by whom.
Foreclosure
Foreclosure is the legal process by which a mortgage lender , or other lien holder, obtains a termination of a mortgage borrower 's equitable right of redemption, either by court order or by operation of law...
sale did not produce sufficient funds to pay the underlying promissory note
Promissory note
A promissory note is a negotiable instrument, wherein one party makes an unconditional promise in writing to pay a determinate sum of money to the other , either at a fixed or determinable future time or on demand of the payee, under specific terms.Referred to as a note payable in accounting, or...
, or loan, in full. The availability of a deficiency judgment depends on whether the lender has a recourse or nonrecourse loan, which is largely a matter of state law. In some jurisdictions, the original loan(s) obtained to purchase property is/are non-recourse, but subsequent refinancing of a first mortgage and/or acquisition of a 2nd (3rd., etc.) are recourse loans.
In short, many jurisdictions hold that the loans obtained at the acquisition of a property ("purchase-money") are non-recourse, and most if not all subsequent loans are.
States that follow the title (trust-deed) theory of mortgages typically allow non-judicial foreclosure procedures, which are fast, but do not allow deficiency judgments. States that follow the lien theory of mortgages require judiciary foreclosure procedures, but allow deficiency judgments against the debtor.
It is important to note that there is a difference between a deficiency and a deficiency judgement. A "deficiency" is the difference between the amount owed on a loan and the total amount received/collected at the closing of a loan. A Deficiency Judgement is the constructive notice as well as legal and public record of that amount owed, and by whom.