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Deficiency Judgment

1. A judgment awarded by a court when the proceeds from the sale of the security pledged for a loan is insufficient to pay off the debt of the defaulting borrower.

2. A personal judgment againsta debtor for the amount remaining due after a judicial foreclosure of a mortgage or a trust deed. This remaining amount is handled by the lender in one of three ways: a payment agreement is offered a deficiency judgment is entered or the debt is forgiven. If the deficiency debt is forgiven your lender will issue you a 1099-C IRS form. The IRS then views the forgiveness of the debt as your personal income which you will need to report on your taxes. If you are declared financially insolvent the IRS can render the income as exempt.