Tim lost his home in a foreclosure and received a deficiency judgment. What is a deficiency judgment?

• A. A legal document transferring ownership of the foreclosed property to the lender.
• B. A notice informing Tim that his credit score has been reduced due to foreclosure.
• C. A court order requiring Tim to pay the remaining balance owed on the mortgage after the foreclosure sale proceeds are applied.
• D. A settlement agreement that forgives all of Tim's outstanding mortgage debt.

Answer: (C)

Verified step by step guidance

1. Understand the concept of a deficiency judgment: A deficiency judgment is a court order that requires a borrower to pay the remaining balance owed on a mortgage after the foreclosure sale proceeds are applied to the debt. This occurs when the sale of the foreclosed property does not cover the full amount of the outstanding loan.
2. Analyze the options provided in the question to determine which one aligns with the definition of a deficiency judgment.
3. Option 1: 'A legal document transferring ownership of the foreclosed property to the lender' - This describes a deed in lieu of foreclosure, not a deficiency judgment.
4. Option 2: 'A notice informing Tim that his credit score has been reduced due to foreclosure' - This is unrelated to a deficiency judgment and pertains to credit reporting.
5. Option 3: 'A court order requiring Tim to pay the remaining balance owed on the mortgage after the foreclosure sale proceeds are applied' - This matches the definition of a deficiency judgment and is the correct answer.