Deficiency Judgment Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Deficiency Judgment, written in plain English, along with examples of how it is used.

What is Deficiency Judgment?

n. The judgment issued for the amount that is not covered by the value of the security placed for the loan or installment payments. Most states require a judicial foreclosure is filed instead of just foreclosing on real property. Additionally, after foreclosure on the mortgage or deed of trust, some states allow a lawsuit for a deficiency judgment. The lease or installment contract usually has the deficiency judgment written into it. However, there is the risk that the sale of a repossessed vehicle will be at a wholesale price or to a friend at a sheriff’s sale or auction which leaves the debtor responsible for the difference between the sale price and the remainder due on the contract or lease.

History and Meaning of Deficiency Judgment

Deficiency judgment is a legal term that originated in the United States. It is a judgment issued by a court for the outstanding amount that is left unpaid on a secured loan or installment payments after the value of the security placed for the loan has been utilised.

Most of the states in the US require a judicial foreclosure to be filed, while some states allow a lawsuit for a deficiency judgment after a foreclosure on the mortgage or deed of trust. A lease or installment contract can have the deficiency judgment written into it as well.

Examples of Deficiency Judgment

  1. After foreclosure on their house, the bank sued the owners for a deficiency judgment, as there was still an unpaid balance on the mortgage.
  2. The borrower had to pay a deficiency judgment of $5,000 on their car loan, as the sale of the repossessed vehicle was not enough to cover the outstanding balance.
  3. The lender obtained a deficiency judgment on the commercial property after it was foreclosed on due to non-payment of the loan.

Legal Terms Similar to Deficiency Judgment

  1. Foreclosure: The legal process where a lender reclaims the property used for the secured loan or mortgage when the borrower fails to make payments on it.
  2. Secured Loan: A loan where the borrower pledges some sort of collateral as a security for the loaned amount.
  3. Installment Payment: A payment made periodically by the borrower to the lender to pay off debt.