Deficiency Judgments: Bank Took your Home, Now They are After Your Money, Too…?

Foreclosure Dollars

Foreclosure Dollars

Definition: A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note, or loan, in full.

Example: Bank forecloses on, then sells your home, the sales price is insufficient to pay off the bank (mortgage lender). For instance, the mortgage balance was $200,000, but the house sells for $100,000 at the time of the court-ordered sale, the bank can then ask a judge for permission to go after the borrower for the difference, or the “deficiency,” of $100,000.

In the aforementioned scenario, borrowers are completely blind-sided. As it happens, Dade/Broward and West Palm Beach Counties have seen a significant number of deficiency dispute defense cases in the last 6-7 years. A competent foreclosure defense attorney is essential during these critical stages.

The deficiency action can be brought by the primary lender, a second mortgage holder, a mortgage insurance company or a government entity like Fannie Mae or Freddie Mac.

Depending on when you borrowed the money and when the foreclosure case was filed, in Florida, lenders may have from one year up to five years to file a deficiency action, meaning there is more than enough time for the borrower to get the feeling that they are past the process. However, once a judge grants the deficiency, creditors can come after you up to 20 years later. The claim can even be pursued if the borrower moves to a state with more conservative foreclosure laws.

After losing a property in foreclosure, it’s not unusual for borrowers to ignore calls and letters, and only be alerted to their exposure to potential deficiency litigation and subsequent judgments after their wages have been garnished. If the creditor had taken a default judgment against you and you were unaware of the deficiency case, or were unable to defend yourself, you may be able to get the court to vacate (remove) or modify (change) the deficiency judgment.

You must act quickly and have acceptable legal and factual reasons for this request. For example, the creditor waited too long to take a deficiency judgment and violated the statute of limitations, which is often shortened in mortgage deficiency actions.

Alarmingly, the process can allow for seemingly unrelated parties to show up in court, seeking the right to collect on a mortgage debt. A foreclosure Lawyer who has examined the mortgage documents can challenge on many fronts including whether the party seeking the right to pursue the borrower even has the right to collect.

You want the best representation possible – no one should find themselves at the mercy of a lender as you are attempting to decipher complex legal jargon.