Since the housing market collapsed in late 2007, Florida has remained in the top three for the states with the highest foreclosure rate. As of November 2013, Florida has topped the charts once again with 1 out of every 392 housing units receiving a foreclosure notice. Although nationwide foreclosure rates have fallen substantially from 2012, the Sunshine State faces extreme backlogs with the courts and many homeowners are at risk of losing their home to foreclosure.
One of the scariest thoughts for distressed homeowners is the fact that Florida is a recourse state that permits deficiency judgments. In today’s housing market, when a home is foreclosed on the total outstanding balance owed on the mortgage(s) often exceed the foreclosure sales price. A “deficiency” is the difference between the amount owed by the borrower and the foreclosure sales price – many know this as being “underwater.”
New Deficiency Laws in Florida
As of July 1, 2013, a new foreclosure statute was set in place which gave further protections to homeowners who face a potential deficiency judgment. Mortgage holders must go through the courts in order to obtain a deficiency judgment against the borrower, they cannot just demand the difference or hire a debt collector to pursue the deficiency. This new deficiency law reduces the time period (statute of limitations) a lender has to seek the deficiency from five years down to one year for residential 1-4 unit properties.
This new law applies to all short sales, foreclosures, and deed in lieu (i.e. voluntary foreclosure) that occurred on and after July 1, 2013, however many sales which came from deficiency judgments set into motion before that date still remain valid until July 1, 2014. For example, if the five year time period will expire after July 1, 2014 under the old law, the new law shortens the lender’s right to pursue a judgment to July 1, 2014.
In the end, the judge has the final say as to the amount of the deficiency judgment. Generally, this amount cannot exceed the difference between the judgment amount and the fair market value of the property (as of the foreclosure sale date), particularly if the home in question was a residential owner-occupied property.
Deficiency Judgment After Short Sale or Deed in Lieu in Florida
In Florida, lenders have the right to pursue the deficiency after both a short sale and deed in lieu. While both routes will ultimately result in the lender agreeing to release the lien for less than the amount owed on the mortgage(s), a deficiency amount will remain – i.e. the promissory note has not been satisfied. In order to avoid a deficiency judgment after a short sale or deed in lieu, the borrower must negotiate prior to the event for the lender to “waive their rights to the deficiency.” The final agreement between both parties must clearly outline the “deficiency waiver” and a borrower should never trust any “verbal” agreement with the lender. Without a deficiency waiver noted in the agreement, the borrower is left on the hook for the total deficiency.
Note: We have helped countless homeowners all over the country and have found over the last 6 years that deficiency judgments are rare in any state. If you’re facing foreclosure and don’t know where to turn for help, join our free forum here on LoanSafe for free advice and answers to all your questions/concerns.