Deficiency judgment
A court order making a borrower pay the difference when a foreclosure sale doesn't cover what's owed. Some states ban them for primary residence loans.
Every term like this one lights up in the step you're on.
Free to set up. No credit card.Part 1 of 4
Why a seller cares
When a foreclosure or short sale brings less than the loan, the lender may sue for the difference. Some states ban it on a primary home; a short sale approval letter that waives it is the seller's protection in the rest.
Part 2 of 4
A simple example
Your short sale closes at $230,000 against a $265,000 balance. The approval letter says the lender waives its right to the $35,000 deficiency.
| What the paperwork says | What can follow |
|---|---|
| The deficiency is waived in writing | The $35,000 is gone, though it may be reported as forgiven debt |
| The letter is silent | A judgment is possible where the state allows |
| The state bans deficiency judgments on primary homes | No suit, whatever the letter says |
A deficiency judgment is the debt following you out of the house. The waiver is the door that stops it.
Part 3 of 4
What people get wrong
That the sale settles the loan. It settles what the sale brought; the rest is settled by the state's law or the lender's letter.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
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