PURSUIT OF DEFICIENCY JUDGMENTS
What is a Deficiency Judgment?
A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce the necessary funds to pay an underlying promissory note, or loan, in full.
There is a significant difference between deficiencies and deficiency judgments. A deficiency is a difference between the amount owed on a loan and the total amount collected at the closing of a loan period. A deficiency judgment, however, is a court judgment that is a public record of the amount owed and by whom.
Pursuit of Deficiency Judgments
Deficiency judgment litigation became more prevalent in Florida sometime around 2009 when many foreclosed properties were “underwater.” What this term refers to is that the indebtedness of the homeowner to a mortgage holder was greater than the value of the property. In Florida, the determination of a deficiency judgment is calculated by taking the final judgment of a foreclosure amount, less the fair market value of the foreclosed property on the date of the foreclosure sale.
In steady economic times, deficiency judgments should be rare occurrences, as presumably, banks would underwrite mortgage loans with sufficient loan to value ratios to cover the difference in the event of a foreclosure. However in 2009, when real estate values saw a precipitous decline, combined with an enormous increase in the amount of defaulted loans, the table was set for a massive uptick in deficiency judgment litigation.
The statute of limitations to file a deficiency action was recently amended by the Florida legislature concerning notes secured by a mortgage against residential properties that are one-family to four-family dwellings. See Florida Statute §95.11(5)(h). The limitations date begins the day after the certificate of title is issued in the underlying foreclosure or the day after the mortgagee accepts a deed in lieu of foreclosure. For commercial properties not covered by the aforementioned statute, the statute of limitations remains five years. In the residential context, a foreclosing lender must be ready to swiftly act to obtain the necessary appraisal(s) in order to commence deficiency proceedings. The appraisals should be conducted with an effective date of the foreclosure sale.
In the event the deficiency proceedings are contested, an evidentiary hearing will be set by the court. The evidentiary hearing will be a battle of the experts – the lender’s appraiser v. the borrower’s appraiser. Most borrowers who deem themselves “judgment proof” will not fight entry of a deficiency judgment. However, the borrower with assets to protect has every incentive to minimize the amount, if any, of a deficiency judgment. If a deficiency judgment is entered, the case becomes a post-judgment collections matter and collections will commence.
Commercial Litigation Lawyer
At the Law Offices of Paul A. Humbert, P.L., we have extensively litigated foreclosure deficiency judgments (both pre and post-judgment) throughout the state. We understand the unique challenges associated with deficiency judgment litigation and collection and can guide the way forward.