Legal Definitions - deficiency judgment

Deficiency judgment is a legal term that refers to the money that a creditor can receive when the assets used to secure a loan do not cover the debt owed by a debtor. This happens when a debtor becomes insolvent and is unable to pay back the loan.

For example, if a person takes out a mortgage to buy a house and then becomes unable to make the payments, the bank can repossess the house and sell it to recover the debt. However, if the sale of the house does not cover the full amount of the debt, the bank can seek a deficiency judgment to cover the remaining amount.

In order for a deficiency judgment to be granted, the creditor must be in a state that recognizes deficiency judgments for the type of debt and must prove that the asset was sold at a fair price.

Deficiency judgments most commonly arise in mortgage foreclosures, but they can also occur in other types of loans, such as car loans or personal loans.