National Real Estate Exam (PSI)FinancingHard
A lender forecloses judicially on a defaulted borrower. The property sells at the foreclosure sale for $180,000, but the borrower still owed $210,000 on the note. The court grants the lender a personal judgment against the borrower for the $30,000 shortfall. What is this court order called?
- AShort sale approval
- BEquity of redemption
- CDeficiency judgment
- DDeed in lieu of foreclosure
Show answer & explanationAnswer & explanation
Correct answer: C. Deficiency judgment
A deficiency judgment is a personal judgment against the borrower for the difference between the outstanding loan balance and the amount recovered at the foreclosure sale, available in judicial foreclosure states when the sale proceeds do not cover the full debt.
Why the other options are wrong
- A. A short sale involves selling for less than owed with lender approval prior to foreclosure, not a post-sale judgment.
- B. Equity of redemption is the borrower's right to reclaim property before the foreclosure sale, not a monetary judgment.
- D. A deed in lieu is a voluntary conveyance to avoid foreclosure, not a court judgment after a sale.
Deficiency Judgment
A court order requiring a defaulted borrower to pay the remaining balance owed after a foreclosure sale fails to cover the full debt.
- Available primarily in judicial foreclosure states
- Some states restrict or prohibit deficiency judgments
- Calculated as debt owed minus sale proceeds
Memory trick: Sale falls short, judge makes up the rest.