Deficiency Judgments in Florida
As if foreclosing on your home was not bad enough, some former homeowners are finding themselves still on the hook for their mortgage. Deficiency judgments occur when there is a difference between what former homeowners owed on their mortgage and what the bank sold the home for at auction. Most people are under the opinion that they negotiated the deficiency away. However, people can find themselves in this situation even when the bank has approved them to sell their home for less that it was worth. Because of the falling home prices and unforeseen circumstances—unemployment or job transfers—people are being forced to short sale or foreclose on their home and, as a result, are getting caught up in deficiency judgments.
Here is where the complication occurs—releasing title to a home does not necessarily end the debt. Generally, a mortgage has two-parts: a pledge of collateral, represented by the home, and a promise to pay off the loan. Foreclosing on your property may result in you giving up the collateral (your home) without releasing you from your liability to repay the debt under the promissory notes.
Whether banks can and will pursue deficiency judgments depend on a wide array of factors, including but not limited to: what state the borrower lives in and whether there is a second mortgage or other liens present. In the case of foreclosures, lenders can pursue deficiencies in more than 30 states; among these states are Florida, New York and Texas. California, for example, is a non-recourse state and does not allow deficiencies judgments. However, even in California, if the original loan was refinanced, some or all of it may be subject to claims. Another startling aspect of deficiencies is that the judgments do not have to be obtained immediately—lenders can wait until borrowers have regained financial stability and then swoop in. In Florida, the bank can wait up to five years to file. Once the court grants a judgment, the lender has 20 years to collect, with interest. To read more on this topic see Deficiency Judgments.
If you are pursuing a short sale, be sure you have legal representation. An attorney can ask the bank to release you from any further obligations. Also, if you have any doubts about the risks that are associated with borrowing seek legal advice.
Greg Gilbert
Keith Maynard
