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LSDefine
Simple English definitions for legal terms
deficiency judgment
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A quick definition of deficiency judgment:
Deficiency judgment is when a creditor is owed money by a debtor, but the asset used to secure the loan does not cover the full amount owed. This happens when the creditor takes back the asset and sells it, but the sale does not cover the full debt. The creditor can then get a deficiency judgment to cover the rest of the debt. This usually happens in mortgage foreclosures when the home does not cover the cost of the mortgage. To get a deficiency judgment, the creditor must be in a state that allows it and prove that the asset was sold at a fair price.
A more thorough explanation:
Deficiency judgment is a legal term that refers to the money that a creditor can receive when the assets used to secure a loan do not cover the debt owed by a debtor. This happens when a debtor becomes insolvent and is unable to pay back the loan.
For example, if a person takes out a mortgage to buy a house and then becomes unable to make the payments, the bank can repossess the house and sell it to recover the debt. However, if the sale of the house does not cover the full amount of the debt, the bank can seek a deficiency judgment to cover the remaining amount.
In order for a deficiency judgment to be granted, the creditor must be in a state that recognizes deficiency judgments for the type of debt and must prove that the asset was sold at a fair price.
Deficiency judgments most commonly arise in mortgage foreclosures, but they can also occur in other types of loans, such as car loans or personal loans.