What is a deficiency balance after collateral sale?

• A. The amount paid to satisfy the debt in full from non-collateral sources.
• B. The sale price of the collateral.
• C. The amount remaining on the debt after the proceeds from the collateral sale are applied to the obligation.
• D. The interest accrued on the debt after default.

Answer: (C)

Deficiency balance is the amount remaining on the loan after the proceeds from selling the collateral have been applied to the debt. When collateral is liquidated, the cash from the sale reduces the outstanding obligation; if the sale brings in less than what’s owed, the shortfall—the deficiency balance—remains. It isn’t the sale price of the collateral itself, and it isn’t just the interest accrued after default. For example, if the loan balance is $100,000 and the collateral sale yields $70,000 (net of costs), the deficiency balance would be $30,000.