We’re all struggling financially right now, especially following the restrictions imposed during the COVID-19 pandemic. And on top of the pandemic, many residents here are seeing their bank accounts garnished from deficiency judgments in Florida from foreclosures from the last big financial crisis in 2008.
But what exactly are deficiency judgments and what is the statute of limitations on deficiency judgments in Florida? During this guide, we will outline what a deficiency judgment is, how the foreclosing bank can get a deficiency judgment against you in the state of Florida and what exactly happens to the deficiency in a short sale or a deed instead of foreclosure.
During a foreclosure, the total amount of debt that the borrower owes often exceeds the foreclosure sale price, so the deficiency refers to the difference between the total amount of debt and the foreclosure sale price. For example, if you owe a total of $200,000 on your mortgage loan, including the principal, all of the interest, fees and any additional costs, but your home sells for a mere $150,000 during the foreclosure sale, then the deficiency amount is $50,000.
In many states, the bank that is foreclosing can seek a deficiency judgment against the debtor in question in order to recover the deficiency amount. Once a bank secures a deficiency judgment against you, the bank is then allowed to collect the deficiency amount through traditional collection methods, whether that means garnishing your bank account or your wages. But what exactly is allowed in Florida? And is there a statute of limitations on deficiency judgments?
Foreclosures in the state of Florida are considered judicial, meaning that the bank must go through the state court in order to foreclose on the home. There are some other states out there that allow nonjudicial foreclosures, meaning that the foreclosure is allowed to proceed without any court involvement.
However, deficiency judgments are very much legally allowed in Florida. The bank is allowed to get a deficiency judgment as part of the foreclosure action, as long as the debtor was personally served with a foreclosure complaint. The bank is also allowed to file a separate lawsuit against the debtor for a deficiency judgment unless the court denied a deficiency judgment during the foreclosure action. Keep in mind that statutes, as well as how agencies and courts interpret and apply the law, can definitely change from time to time, so it is probably best to consult an attorney to guide you through the legal process if you are facing a foreclosure.
The judge typically determines the amount of the deficiency judgment in the state of Florida, but the judgment is not allowed to exceed the difference between the judgment amount and the fair market value of the home during the date of sale, especially if the property is residential and occupied by the owner.
But what is the statute of limitations on deficiency judgments? The statute of limitations for deficiency judgments for residential properties with no more than four units is one year in Florida. The limitations period typically begins on the day after the court clerk issues the certificate of title to the person that bought the home at the foreclosure sale. And generally, if no one files an objection to the sale, the court clerk issues the certificate of title about 10 days after the certificate of sale. According to Florida law, the clerk is required to promptly file a certificate of sale after the foreclosure sale happens. So if you are currently seeing bank account garnishment happen more than one year after a foreclosure, this is past the statute of limitations for deficiency judgments and you should consult an attorney.
A short sale occurs when you sell your home for less than the total amount of debt that you owe to the lender, and the proceeds of the sale then pay off part of the balance. According to Florida law, banks are allowed to seek deficiency judgments after short sales, but if the property is residential and occupied by the owner, the deficiency is not allowed to exceed the difference between the outstanding debt and the fair market value of the property on the date of the sale.
If you want to avoid a deficiency judgment altogether, the short sale agreement should state that the bank waives its right to the deficiency. If the agreement doesn’t contain this statement, the bank is allowed to file a lawsuit to retrieve a deficiency judgment. Keep in mind that you may need to pay taxes on the deficiency if the bank decides to forgive it.
A deed in lieu of foreclosure, also known as a deed in lieu, refers to a bank agreeing to accept a deed to the property instead of foreclosing in order to get the property’s title. A deficiency amount in the case of a deed in lieu is the difference between the total amount of debt owed and the fair market value of the property. In most cases, a deed in lieu is considered to satisfy the debt, but banks are still allowed to seek deficiency judgments.
In order to avoid a deficiency judgment, the bank needs to sign an agreement that the transaction fully satisfies the debt. If the deed in lieu contract does not include this statement, the bank is allowed to file a lawsuit to retrieve a deficiency judgment, and the debtor might have a tax liability if the bank decides to forgive the deficiency. The bank has up to one year to pursue a deficiency judgment after accepting the deed in lieu, but anything beyond one year goes beyond the statute of limitations for deficiency payments.
Is your home in foreclosure? Want to learn more about deficiency judgments? Schedule a free consultation here.
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