Florida Law on Foreclosure Deficiency Judgment

Foreclosure is the kind of situation that people dread. It is the main reason people often prioritize mortgage payments even over utility and other types of monthly expenses. Avoiding it is not always possible, though, and when it happens, indebted homeowners will undoubtedly have numerous questions.

Here is what you need to know about the Florida law on foreclosure deficiency judgment, starting with the basics: 

What is a Deficiency Judgment?

When a person is facing foreclosure, their home will typically be sold in an auction. The idea is that the proceeds from that sale will be used to retire the debt that led to that foreclosure. 

However, the total of the proceeds from a foreclosure sale may not be enough to cover that entire debt. For example, a person may have $750,000 in debt, but their property may only sell for $500,000. In this case, the remainder of $250,000 would be considered a deficiency. 

To pay that deficiency off, the creditors may obtain what is called a deficiency judgment. This is a legal order for the person who faced foreclosure to pay the amount their sales came up short in repaying outstanding debt. In some cases, this will be filed as part of an overall foreclosure process, while in others, a separate legal process is required. Either way, creditors are legally cleared to do this as a way to recover some or all of the money they are owed. 

How Foreclosure Sales Work

When a homeowner defaults on their mortgage loan, their property may be seized and sold at a public auction. This auction is the final step in the foreclosure process and is also referred to as a foreclosure sale. Typically, the property is offered at a reduced rate to incentivize purchase, but the end goal is to recoup as much of the outstanding debt as possible.

In many cases, the lender themselves will issue the first bid during the auction. This is known as a “Credit bid”, and will result in the lender taking ownership of the property if no higher bids are submitted. Property that is owned by the original lender is referred to as real estate owned or REO property. In these cases, most lenders will bid as low as they think is wise so as to recover the property itself and sell it for a higher price later. 

What if the sale of a property meets or exceeds the amount owed as part of the foreclosure? In this case, the person who owes that amount is freed from further financial obligations. This is true even if the lender cannot sell the property for additional compensation later. While additional money made from the sale of a property would first be used to satisfy any outstanding debt on additional loans associated with it, funds in excess of all money owed would result in the indebted homeowners actually receiving that excess back. 

That is, of course, the ideal situation. However, not all foreclosure sales yield that result. When they do not, collection of a deficiency judgment may soon begin.

Collection of Deficiency Judgment – Can You Be Sued?

There are various ways that a creditor can collect on a deficiency judgment once it has received it. Traditionally, this will involve methods like levying a bank account or garnishing wages. However, not every lender actually goes through with collection – especially if the indebted person is involved in bankruptcy proceedings. 

If that person is involved with a bankruptcy, they may be able to discharge their liability to repay the debt. If not, while they may still be liable, the lender may decide to forgo getting a deficiency judgment against them at all if they lack the resources to repay that debt. Remember, the lender has to invest time and money to pursue legal action, and in some cases, it may simply not be worth either.

However, it is important to remember that they may not always keep your debt, either. For a smaller debt or one which is deemed unworthy of collection, the lender may seek at least a fraction of restitution by selling that debt to a debt buyer. Even if they sell the debt for a tiny percentage of the original amount, the debt buyer can then pursue the full repayment. It may sound unfair or unethical, but it is entirely legal in most cases. 

What About So-Called “Junior” Liens?

Typically, when the primary or “senior” lienholder forecloses, any lienholders beneath them – considered “juniors” – will be foreclosed as well. Those lienholders will also generally lose any security interest in the relevant real estate. In this circumstance, these lienholders may be referred to as “sold-out” lienholders.

This may make the party who faced foreclosure think that they no longer owe these lienholders money, but that is not the case. If the amount of money they are owed is not covered by the sale of a foreclosed property, the lienholder may sue the indebted party personally. This only serves to make the process more confusing and potentially overwhelming.

Florida Law on Foreclosure Deficiency Judgment Limitations

Some states impose limitations on foreclosure deficiency judgment and the collections thereof. These limitations may involve requiring that the lender submit a credit bid at or above the fair market value of the home, or pay the borrower the difference if they fail to do so. These limitations are designed to restrict predatory lending practices and keep as many homeowners in their homes as possible.

What is the Florida law on foreclosure deficiency judgment? Foreclosure in the state of Florida is judicial, meaning that it must be conducted formally through the court system. There is some flexibility regarding the amount that can be pursued for the judgment, but generally, that amount cannot exceed the difference between the fair market value of the home at the time of sale and the amount that was paid by a buyer. This is true even if that buyer was the lender, themselves.

If you still need help regarding Florida law on foreclosure deficiency judgment, contact the legal team at the Van Horn Law Group. We have the experience you can count on to help you navigate the process of foreclosure – including what to do if you encounter a deficiency.