Foreclosures and Deficiency Judgments
The recent economic recession saddled many Florida homeowners with properties that were suddenly valued at prices far below their mortgage debt balances. As a result, many property owners were forced to go through the foreclosure process and, in some cases, to pay the difference between the sale proceeds and the remaining debt owed to the original lender. While many states have enacted anti-deficiency statutes that protect homeowners from judgment, Florida leaves the issue to the discretion of the judicial branch.
Process of Foreclosure
In order to foreclose on a property, a lender, most often a bank, must file a lawsuit in court, in which it attempts to show that a borrower defaulted on his or her mortgage. If a court agrees, it will order a foreclosure sale, where the lender will attempt to recoup any losses. Once the sale is completed, the terms must be confirmed by the court. If the terms of the order are met, a certificate of title will be transferred to the new owner.
In the event that a foreclosure sale does not cover the entire mortgage debt, a court may enter a deficiency judgment against the previous homeowner. A deficiency judgment represents the difference between the outstanding mortgage balance and what was earned in the foreclosure sale. A deficiency judgment can also include the costs of the sale, as well as any realtors’ commissions, attorney’s fees, or repair costs.
If a deficiency judgment is granted, a court can authorize the lender to garnish the borrower’s wages up to 25 percent of his or her weekly income. However, if the borrower is the head of a household, Florida law does not permit wages to be garnished at all. Furthermore, lenders can request an order allowing them to place a lien against any assets that are not protected by the homestead law. Alternatively, a bank can choose to sell the deficiency judgment to a collection agency.
In Florida, a foreclosure does not always create a deficiency judgment. The lender can obtain one as part of the foreclosure as long as the borrower was personally served the complaint or if it filed a separate lawsuit.
Some states have enacted laws known as anti-deficiency statutes, which attempt to protect the borrower from deficiency judgments in certain circumstances. While anti-deficiency laws can be helpful to homeowners who have lost their properties, they are also fraught with exceptions. For instance, the laws sometimes only work for original purchase money loans and not re-financed loans, or only protect those who own residential property. Additionally, anti-deficiency statutes do not provide a defense for judgments entered in another state, as the law of the state where the property was located determines whether there will be a judgment.
Florida has not enacted any general anti-deficiency laws, although the state does require that deficiency claims be brought within a certain timeframe. Generally, a lender may only seek a deficiency judgment against a borrower within five years after a court clerk issues a certificate of title to the buyer who purchased the property at the foreclosure sale. However, for residential properties that have four or fewer units, a lender has one year to bring a deficiency claim against the original owner.
Property owners are not left without recourse. For instance, the equity of redemption, or a borrower’s ability to save a property by paying off the remaining debt, exists up until a sale is confirmed by a court. Lenders are also required to provide notice of foreclosure to homeowners, and a failure to do so may result in the claim being dismissed.
Although Florida does not have any anti-deficiency laws, there are methods for fighting a foreclosure or mandatory payment of a deficiency judgment. If your bank is threatening to foreclose on your property, a lawyer can help protect your interests. If you have questions about how to best protect your own property from being condemned, please contact a real estate litigation attorney at the Silver Law Group for a initial consultation.