Deficiency Judgment

A deficiency judgment is a court order requiring a borrower to pay the difference between the amount received at foreclosure auction and the total outstanding debt — if the sale price was less than what was owed. For example, if a property sells for $200,000 at auction but the borrower owed $280,000, the lender could seek an $80,000 deficiency judgment against the borrower.

Texas Context

In Texas, lenders can seek a deficiency judgment after a non-judicial foreclosure sale, but the amount is limited to the lesser of (a) the difference between the loan balance and the sale price, or (b) the difference between the loan balance and the fair market value of the property. This 'fair market value' limitation — established by Texas Property Code §51.003 — can significantly reduce the lender's deficiency claim. Understanding deficiency risk helps investors assess how motivated a lender may be to accept a short payoff in pre-foreclosure negotiations.