Jacksonville Bankruptcy Lawyer Blog
When a mortgage lender forecloses on a home, the total debt owed by the borrower to the lender often exceeds the foreclosure sale price. The difference between the sales price and the total debt of the borrower is called a deficiency.
In many states, a mortgage lender can receive a personal judgment against the borrower to recover the deficiency owed. Once the lender receives a judgment on a deficiency, the lender can collect the amount from the borrower by levying the borrower’s bank account or garnishing the borrower’s wages.
In some states the mortgage lender can foreclose without going to court. In Florida, foreclosures are judicial, which means the lender must petition for foreclosure through state court. Lenders in Florida may obtain a deficiency judgment as part of the foreclosure action if the borrower was personally served with the foreclosure complaint. The lender may also file a separate lawsuit against the borrower for a deficiency, unless the court in the foreclosure action has granted or denied a claim for a deficiency judgment.
The judicial process for a deficiency judgment starts when the lender requests a deficiency judgment after a judgment of foreclosure has been entered. The lender files a motion and the Court holds an evidentiary hearing on the request. During this hearing the lender must demonstrate the property value of the home was less than the note balance. The borrower can refute this by showing the assessor’s taxed value is more than the note balance
The deficiency judgment is determined in Florida by the judge, who has some flexibility in deciding the amount of the judgment. Usually this amount will not exceed the difference between the judgment amount and the fair market value as of the date of the foreclosure sale.
Recently, the time limit for a lender to request a deficiency judgment has changed. Beginning on July 1, 2013, the period of time in which the lender may seek a deficiency judgment was reduced from five years to one year for residential properties with no more than four dwelling units. The claim for a deficiency in a foreclosure action does not arise until the foreclosure sale has been completed. This means the one-year statue of limitations begins on date of the foreclosure sale. This new statute of limitations is limited to actions that commenced on or after July 1, 2013.
One way to avoid a deficiency judgment is through a short sale. A short sale is when a person sells his or her home for less than the total debt remaining on the mortgage. The money made from this sale is given to the lender to pay off the remaining balance owed on the mortgage balance. However, there is no Florida law that states a lender cannot get a deficiency judgment following a short sale. To avoid the deficiency, the short sale agreement between the borrower and the lender must expressly state the lender waives the right to gain a deficiency judgment. Contact The Law Office of David M. Goldman, PLLC at 904-685-1200 for more information on how to handle a deficiency judgment in Florida. We can assist in negotiating a settlement to minimize the deficiency, or assist in arranging a short sale to satisfy the debt.