When your home is sold at a foreclosure auction there is often a difference between what the home is sold for and what the homeowner owed on the loan. This difference is called a deficiency.
Sometimes during the foreclosure court hearings the lender will ask for a deficiency judgement which means the borrower will have to make up part, or all of the deficiency themselves.
This can also happen when a homeowner is negotiating with a lender for a loan modification or to do a short sale. In these cases the lender will try to regain some of what they lose in the settlement.
The actual amount of the deficiency is determined by the courts and particularly the judge involved.
These are situations where you want a good attorney on your side during these negotiations. Having a good attorney can mean the difference between getting out from under a bad situation or perhaps making the situation worse.
Florida Deficiency Judgments
Foreclosures in Florida are judicial, which means the lender has to go through state court to get one. In other states the lender can foreclose without going to court (i.e. California).
In Florida, the lender can obtain a deficiency judgment as part of the foreclosure proceedings 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 judge determines the amount of the deficiency judgment. The court has flexibility regarding the amount of the deficiency. However, it generally cannot exceed the difference between the judgment amount and the fair market value as of the date of sale, particularly (pursuant to Florida statute) if the property is:
- owner-occupied, and
Deficiency Judgement After a Short Sale
A short sale is when you sell your home for less than the total debt balance remaining on your mortgage and the proceeds of the sale pay off a portion of the mortgage balance.
In Florida law a lender can still get a deficiency judgment following a short sale, though if the property is owner-occupied and residential, the deficiency is limited to the difference between the outstanding debt and the fair market value of the property.
To avoid a deficiency judgment entirely, the short sale agreement must expressly state that the lender waives its right to the deficiency. If the short sale agreement does not contain this waiver, the lender may file a lawsuit to obtain a deficiency judgment.
Deficiency After a Deed in Lieu of Foreclosure
A deed in lieu of foreclosure occurs when a lender agrees to accept a deed to the property instead of foreclosing in order to obtain title. With a deed in lieu of foreclosure, the deficiency amount is the difference between the fair market value of the property and the total debt.
Often, a deed in lieu of foreclosure is deemed to fully satisfy the debt. However, lenders frequently look for new ways to recoup their losses and Florida does not have a law that says the lender cannot get a deficiency judgment following a deed in lieu of foreclosure. This means that a lender may try to hold the borrower liable for a deficiency following a deed in lieu of foreclosure.
To avoid a deficiency judgment with a deed in lieu of foreclosure, the agreement must expressly state that the transaction is in full satisfaction of the debt. If the deed in lieu of foreclosure agreement does not contain this provision, the lender may file a lawsuit to obtain a deficiency judgment.
Effective July 1, 2013, the lender has one year to pursue a deficiency judgment after accepting a deed in lieu of foreclosure.
What About The Major Loan Guaranteers?
Fannie Mae, Freddie Mac, The Veterans Administration, and the FHA all have their own policies regarding deficiency judgements. Click here to learn more about their particular policies.
As you can see, it’s important to have a knowledgeable attorney working for you during any of the situations above. Brown & Associates wants to help. Contact us for a free consultation.