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deficiency judgment


A Deficiency Judgment --No Big Deal…Said No One Ever!

So you’ve stopped paying your mortgage. You now have the fear that the bank will take your home. To top it all, there is a chance you may owe the bank money after they take your home from you.

If your house is sold in a foreclosure sale or a short sale, the property will be sold for less than what is owed to the bank. Since Florida is a recourse state, it allows lenders to seek deficiency judgments for unsatisfied debts. For instance, you owe $100,000 on your mortgage and the property is sold for $75,000. The lender/bank can obtain a deficiency judgment against you for $25,000, and you would be required to pay that money to the bank.

A deficiency judgment may be avoided if the borrower negotiated that the bank/lender will waive any rights to a deficiency, prior to a short sale.  If not, the borrower is still vulnerable to a deficiency judgment.

Since Florida is a recourse state, it allows lenders to seek deficiency judgments for unsatisfied debts.

The Florida Foreclosure Act

On June 7, 2013, Governor Rick Scott signed HB 87, The Florida Foreclosure Act into law. The act makes significant changes to how residential foreclosures and short sales must be conducted in Florida.

A major change to the process is the change in the Statute of Limitations (SOL) for bringing actions for deficiency judgments. A SOL is the time frame within which a person may bring a lawsuit. If a lawsuit is brought outside of that time period, the suit may be dismissed, as the claim is forever barred.

Before the Act was passed, the SOL allowed a party to bring an action for a deficiency judgment at any point up to five (5) years from the date of the certificate sale was issued by the Clerk of Court, following the foreclosure sale. Now, the time frame has decreased to one (1) year for deficiencies created by foreclosure sales and deed in lieu (not short sale).  Please note, this change is limited to actions commenced on or after July 1, 2013.

Benefit to Homeowners  Whose Actions Started Before July 1, 2013.

Although they are still subject to the old statute of five (5) years, there is a wrinkle. Any action put into motion before July 1, 2013 only remains valid until July 1, 2014.  For example, if the five (5) year time period will expire after July 1, 2014 under the old law, the new law shortens the lender’s right to pursue a deficiency judgment to July 1, 2014.

What about Short Sales?

The bill does not directly address the SOL, but it can be construed under the one (1) year threshold. Furthermore, if it is an owner occupied residential dwelling, the recoverable amount is limited to the difference between the remaining debt from the short sale and the fair market value of the property at the time of the sale.

If you are facing foreclosure ,consult with an experienced real estate attorney in South Florida to protect you from any potential consequences. Contact The Hershey Law Firm, P.A. at (954)303-9468 for your free consultation.