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Deficiency judgments are sometimes sought in lawsuits brought by banks when a home goes through a foreclosure sale and afterwards there is still an amount left owing on the mortgage note.  Being left with money still owed to the financial institution after already losing one’s home in a foreclosure is a true nightmare for many Americans these day – this is happening because so many homes are “underwater” (the amount on the mortgage is greater than the fair market value of the property; sometimes called “negative equity“).

Still, banks are pursuing deficiency judgment lawsuits all across the country in  attempts to collect the remaining loan balances after they’ve already sold the foreclosed homes.

Given today’s economy and the state of our banking system, it’s no surprise that Housing Wire is reporting on a national conference in New York City — the Mortgage Bankers Association’s National Mortgage Servicing Conference & Expo – where the bankers from across the country are pondering when a deficiency judgment should be sought by the financial institution.  Attorneys advised the group that they needed to gather as much information as they could before proceeding (imagine that), and to carefully consider the step of filing suit before moving forward.  Bankers were warned they better be sure that the defendant really does have the money to pay the balance due on that note before they start down this road.  Really sure.

Why?  Once the lawsuit is filed, the burden and expense of proving the foreclosed property’s fair market value of the property is on the bank in most states – these lawsuits aren’t quick and cheap.  Moreover, they are likely to be challenged by the homeowner with his or her own property appraiser, making them cost even more to the bank who is trying to collect money in the first place.

Banks cannot expect frustrated homeowners to go down without a fight: particularly when they’ve just lost their home to the bank.

For many homeowners, seeking a deficiency judgment is like kicking someone when they are down.  In most instances, they just don’t have the money to pay.  For these banks, they want their money and they’re focused on this idea that there are a large number of homeowners out there who could afford to keep paying their loan payments but decided to walk away from the whole thing because they were underwater.

The bankers call these “strategic defaults,” and they want to make these homeowners stick to the mortgage bargain.

However, as they were warned this week, before proceeding these banks better have their ducks in a row because each of these lawsuits involves expending lots of time and money (attorneys’ fees, expenses like the appraiser’s expert report) — and the banks’ idea of of rich, clever homeowners who “strategically defaulted” may be just an illusion.

Barclays Capital (BarCap) just issued a report, warning that the number of these slick “strategic defaults” are nowhere near as high as the financial institutions have estimated.

Bottom line, banks are being advised to consider the pursuit of a deficiency judgment on a case by case basis.  Hopefully, the financial institutions will be doing just that.

Whether or not your bank might come after you, after the foreclosure for a deficiency judgment, depends upon lots of things – including what your particular state law requires.  Here in Florida, the process of seeking and collecting a deficiency judgment is governed by statutes such as Florida Statute 702.06 ([d]eficiency decree; common-law suit to recover deficiency) and Florida Statute 702.065 ([f]inal judgment in uncontested proceedings where deficiency judgment waived; attorney’s fees when default judgment entered).

[Read: July 2014 Deadline for Older Foreclosure Deficiency Judgments – Small South Florida Banks and Credit Unions Increasingly Aggressive on Deficiency Collection Efforts]

What does this mean for the homeowner – especially if you are underwater?  If you believe that you might be sued for a deficiency judgment, talk to a lawyer to learn about your rights and how to protect yourself against a deficiency judgment.

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Do you have questions or comments? Then please feel free to Chat with Larry in the comments below, at, or (954) 458-8655. If you have a specific situation, please call or email Larry because he can’t answer specific fact questions in general comments. He’s happy to take your call.

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