A deficiency in the Florida mortgage foreclosure setting is the difference between the value of a lien on real property (the amount due to fully satisfy a debt) and the price obtained by the creditor-mortgagee after foreclosing on the property. For example, if you owe $150,000.00 on your mortgage and your home is foreclosed and sold for $100,000.00, your lender may be entitled to a $50,000.00 deficiency judgment against you – in other words, you may be required to pay him $50,000.00 from your own pocket. But what if your home is foreclosed and sold to your lender for a nominal amount of $100.00? Can you then be required to pay the $149,900.00 deficiency from your own pocket?
If your home is foreclosed in Florida because, for example, you failed to make your past four mortgage payments, chances are that it will be auctioned off to the general public, the proceeds of which will be used to pay your mortgage. Oftentimes, your home will sell for its fair market value. But if the housing market is down, or if your property is for some other reason particularly undesirable, your lender may be the only party who bids on your property – and it may buy your home for just $100.00. Why so cheap? In every real estate transfer, the buyer must pay document stamp taxes, etc. on every $100.00 exchanged for the property. If the property is sold for $100.00, the taxes are obviously much lower and the buyer benefits. But, where does this leave you in terms of your personal liability for the deficiency?
The presence of a deficiency after your home has been foreclosed does not automatically result in a deficiency judgment being entered against you. Your lender will have to file a motion with the court seeking a deficiency judgment, and the court will hold a separate hearing to determine your deficiency liability. The extent to which you can be held personally liable for the deficiency turns on your property’s fair market value as of the date of its foreclosure sale. Your lender will have to prove to the court that when your property was sold, it was worth less than the balance on your mortgage. You will, at this point, be permitted to present your own evidence as to whether your home was worth more (or was equal to) the balance you owe to your lender. If you succeed in this regard, the court will not issue a deficiency judgment against you.
Because in Florida your lender can bring a deficiency action against you for up to five years after your home is foreclosed, you should obtain an assessment of your home’s reasonable value at the time it was foreclosed as soon as possible. If your home is sold for $100.00 or another price that is obviously not reflective of its worth, the court will in most cases issue a deficiency judgment against you for the difference between the value of your mortgage and your property’s fair market value at the time of its sale. So if you owe $150,000.00 on your mortgage and your home is valued at $120,000.00 but is sold for $100.00, you will likely be held personally liable for $30,000.00. If your home is actually bargained for in the auction but still sells for less than its fair market value, it will be presumed that the price at which it sold was indeed its fair market value – and you will be liable for the full deficiency – unless you can prove otherwise. Here, the appraisal of your home’s fair market value will really come in handy. And remember, once the amount of deficiency is determined and a judgment is issued, you are stuck with it.
If you would like more information about this topic, you may either post a comment to this blog, contact me, Larry Tolchinsky, by email, or call me at (954) 458-8655 and I will be happy to answer your questions. I offer a free initial consultation.