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Deficiency judgments are a real concern for home owners facing foreclosure or dealing with short sales here in South Florida.  Under Florida law, even after the home has been sold and the sales price used to pay down the mortgage amount, the lender still has the legal right to come after the assets held by the home owner in a “deficiency lawsuit.”

The negotiation of what that lender will do with any deficiency amount is therefore a big, big part of any short sale negotiation between Florida short sale lawyers who represent Florida home owners and Florida banks threatening foreclosure.

Which is why the recent case of Empire Developers Group v. Liberty Bank out of the Second District Court of Appeal of Florida is so important.

Florida homeowners considering short sales, Floridians with underwater mortgages, and Florida defendants facing foreclosure actions should be aware of this new court case.

Empire Developers Group adv. Liberty Bank – Here’s What Happened at Trial.

It all began a couple of years ago, when Richard and Amy Melson along with William and Brenda Slavich as well as Empire Developers Group LLC were defendants in a lawsuit brought by Liberty Bank back in July 2009.  The lawsuit was all about some Florida condos where the mortgage payments had not been made and the bank was going through the foreclosure process against those responsible on the paperwork for paying those mortgage payments.

The defendants lost. The bank won.  Round One was over.

At trial, Liberty Bank was awarded $2,657,219.72 in a final judgment as a deficiency judgment.  Liberty Bank had already foreclosed on 9 condos, got a final foreclosure judgment of $6,768,895 plus interest there, and sold the real estate.

At the foreclosure sale, surprise surprise, Liberty Bank was the buyer.  Liberty Bank bought the 9 condos for $800,100 as highest bidder at the foreclosure sale.  The sale was on January 6, 2010.

Once Liberty had the foreclosure judgment and had bought up the condos, it went after the amount left due on the note.  Liberty did mitigate things, it sold all but two of the condos by the time of the deficiency hearing and deducted that sales money from the amount it was seeking from the defendants.

In February 2011, Liberty Bank asked for a judgment on the deficiency from the trial court judge and got it:  Liberty got a final deficiency judgment of $2,657,219.72.  The defendants promptly took this up on appeal (asked the appeals court to double check things).

Empire Developers Group adv. Liberty Bank – Here’s What Happened on Appeal.

The appeal was filed and heard by the Second District Court of Appeals.  Appellate courts do not have trials; instead, they are reviewing courts and they review the trial proceedings to make sure that the laws were found, procedures were kept, and that justice prevailed.  It is up to the party seeking an appeal to point out the errors that have been made – appeals courts (except in certain narrow situations) do not automatically grade the papers of a trial court judge.

Here, the defendants argued (through their attorneys in oral arguments and legal briefs) that Liberty Bank had been improperly awarded the deficiency because the way that the amount was calculated was wrong.  They told the appellate judges that what should happen is that the total debt as stated in the foreclosure judgment has the fair market value of the property deducted from it, and this is the proper deficiency amount.

The error, they argued, was in how the “fair market value” of these condos was presented by Liberty Bank to the trial court.   The appellate court agreed with them and found that the trial court made an error.

Six months had passed between the appraisal of the condos (June 13, 2010) and the date of the foreclosure sales.  Liberty Bank dismissed this as “there would not have been much change in the rate” in that 6 month time frame; the appeals court found this explanation to be “conclusory” and “insufficient to show the value of the units at the date of the foreclosure sale.”

Since there was not good evidence of the fair market value of the condos on the date of the foreclosure sale, the amount tallied as the amount of the deficiency was without valid support and the trial court made a mistake by issuing a judgment against the defendants with those numbers.

Larry Tolchinsky’s Tip:

This case isn’t over — the defendants will still have to negotiate this case and deal with a deficiency amount, it’s just not clear right now how much that will be.  As the court wrote in its opinion, “…[b]ecause there was no competent, substantial evidence presented as to the fair market value of the property at the time of the foreclosure sale, we reverse the deficiency judgment and remand to the trial court for further proceedings.”

However, there are lessons to be learned here.  Among them:  every Florida home owner should be aware of the gap, if any, between the appraisal date and the date of the foreclosure sale.   That gap may mean that there cannot be a valid calculation of the deficiency as this court opinion explains.

Another lesson: it’s not over till it’s over in Florida foreclosure cases.  These condo owners have been fighting with their bank for years, literally, and they’ve been victorious now, in 2012, after a fight that we know has gone on for at least three years.

Florida deficiency attorneys and Florida short sale lawyers know that these battles can be stressful and draining, but in the end, these battles can be victorious and money-wise: for instance, millions of dollars are at stake in this case, and the defendants may have saved themselves a considerable sum by appealing the trial court’s decision.

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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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