A deficiency judgment is a court order obtained by a creditor to be paid an amount owing as proceeds from repossession and foreclosure are insufficient to cover for the full amount owed.
It also serves as a deterrent against unscrupulous borrowers who are out to game the credit system and borrow money without the full intention to repay them.
For example, a person might owe a bank $100,000 from a home loan. But upon foreclosure, the sales proceeds only amount to $80,000 which is repaid to the bank. The lender can then file a suit for deficiency judgment to collect the remaining $20,000 from the borrower.
Deficiency judgments, which are unsecured money judgments, can be filed against borrowers, guarantors, and even endorsers.
It can place a lien against a debtor’s personal assets if the debtor don’t have the funds to settle the claims.
Some states do note allow deficiency judgments on housing loans and creditors would be left holding the bag in such cases.
However, a borrower’s credit score would inevitably take a beating nevertheless.