Florida has been one of the top states for foreclosures since the crisis began in 2007. As of November 2013, the state had topped the charts once again with 1 out of every 392 housing units receiving a foreclosure notice. Thousands of struggling Florida homeowners have been foreclosed on, performed a short sale, or simply walked away from their homes over the past seven years and are now starting to feel the true pain of their unfortunate real estate pasts.
This pain that is starting to haunt Florida homeowners is what is called a deficiency judgement.
When a home is foreclosed on in Florida, it must be filed with the state courts through a judicial foreclosure. If the foreclosure is granted and there is more money owed by the former homeowner (borrower) than what is recouped by the lender from the sale of the home minus the costs and fees, this is called a deficiency.
This lender will then make a decision on whether or not they will pursue the person for a deficiency judgement. If the amount of money is large, and the ability to collect possible, they will most likely sue the defaulted borrower in order to obtain from the courts a deficiency judgement.
Floridians need to also understand, that there is no law in Florida that states there is no deficiency judgment following a short sale. If you sold your home in a short sale, you may also be liable for a deficiency judgement.
Generally the amount of the judgement 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.
In order to achieve this, the mortgage lender must provide the court with proof that the borrowers remaining loan balance is more than what their property is now worth. On the other hand, the borrower is allowed to provide their own evidence to prove their home is either worth as much as the loan balance or more. If the borrower proves to the courts that the home was valued more than the loan balance at the time of sale, the lender will have no right to pursue the deficiency balance.
There are some important changes in the Florida state law that you should be made aware of.
NEW LAW AS OF JULY 1, 2013
Effective July 1, 2013 (House Bill 87), the period of time in which the lender may seek a deficiency judgment is reduced from five years to one year for residential properties with no more than four dwelling units. The claim for a deficiency in a foreclosure action does not arise until the foreclosure sale has been completed, so this means that the one-year time frame starts at the time of the foreclosure sale.
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.
PLAINTIFF MUST HAVE THE ORIGINAL MORTGAGE NOTE
This new law also requires that the plaintiff (lender and/or mortgage servicer) must prove they have the legal right to foreclose by meeting additional requirements which include producing the original mortgage note or a clear chain of endorsements:
* a certification that the plaintiff is in possession of the original promissory note, or if the note has been lost, a lost note affidavit with a clear chain of all endorsements, transfers, or assignments of the promissory note.
I assume that producing these documents will be easier said than done for many plaintiffs.
WHAT DO YOU DO IF YOU THEY COME TO COLLECT ON A DEFICIENCY JUDGEMENT AND/ OR ARE SUED?
It is always best to seek legal advice from a competent attorney, or better yet to find a really good real estate lawyer who knows his or her stuff, than to go the legal route alone. But for some people, money is hard to come by and they may have to try and defend themselves against a deficiency judgement.
Here are the only five options I see at the moment which are;
1. Prove it is an invalid debt by making them produce the original mortgage note or clear chain of assignments.
2. Negotiate a settlement on the amount owed.
3. Negotiate a repayment plan on the amount owed.
4. Claim in court a head of household exemption
5. If you qualify, claim bankruptcy if you cannot afford any payment plans or wage garnishments.
You also need to get educated about the federal and state laws on what debt collectors can and cannot do. For example, to go along with proving that the deficiency may be invalid debt (no original mortgage note or chain of title), under the federal Fair Debt Collection Practices Act, it requires that a debt collector verify the amount and validity of the debt. The burden of proof that they can and have legal premise to collect is on the debt collector, NOT you!
My understanding is once you are served, the assumption of the debt will be valid unless you dispute it within 30 days. One thing you all can do, is send a letter certified mail with “return receipt requested” asking for a correct accounting of the amount and validity of the debt, including but not limited to the proof of deficiency, a down to the penny accounting of the said fees, possession of the note, or a sworn affidavit of its location and clear chain of assignments.
Here is some information on the Fair Debt Collection Practices Act, from the FTC:
§ 809. Validation of debts [15 USC 1692g]
(a) Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing —
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
(5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
(b) If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or any copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.
(c) The failure of a consumer to dispute the validity of a debt under this section may not be construed by any court as an admission of liability by the consumer.
If the plaintiff fails to comply with the new laws or is illegally trying to collect on a debt, in order to make them produce the evidence mentioned above, you will have to properly answer any attempts to collect or court requests with the proper paperwork, documentations, and of motions in order to properly defend yourself.
IF THE PLAINTIFF WINS A JUDGEMENT, WHAT CAN THEY DO TO COLLECT THE MONEY IF I HAVE NONE?
The only ways to possibly stop a legally obtained wage garnishment is through bankruptcy, and by also properly defending yourself. For example, you may qualify under state law for a head of household exemption.
If your wages are $750 per week or less, you can claim a head of household exemption. If your wages are more than $750 per week, they can only be garnished if you have agreed in writing to allow the creditor to garnish your wages. To qualify as head of family, you must provide more than one half of the support for a child or other dependant. So, if you do not have a child that you pay for, then per the state law, you cannot claim this exemption. If they do win a wage garnishment suit, the most they can take is no more than the lesser of twenty five percent of your disposable weekly income or disposable earnings equal to thirty times the Federal minimum wage.
Here is the law on wage garnishments from the State of Florida:
The 2013 Florida Statutes
HOMESTEAD AND EXEMPTIONS
METHOD OF SETTING APART HOMESTEAD AND EXEMPTIONS
222.11 Exemption of wages from garnishment.—
(1) As used in this section, the term:
(a) “Earnings” includes compensation paid or payable, in money of a sum certain, for personal services or labor whether denominated as wages, salary, commission, or bonus.
(b) “Disposable earnings” means that part of the earnings of any head of family remaining after the deduction from those earnings of any amounts required by law to be withheld.
(c) “Head of family” includes any natural person who is providing more than one-half of the support for a child or other dependent.
(2)(a) All of the disposable earnings of a head of family whose disposable earnings are less than or equal to $750 a week are exempt from attachment or garnishment.
(b) Disposable earnings of a head of a family, which are greater than $750 a week, may not be attached or garnished unless such person has agreed otherwise in writing. The agreement to waive the protection provided by this paragraph must:
1. Be written in the same language as the contract or agreement to which the waiver relates;
2. Be contained in a separate document attached to the contract or agreement; and
3. Be in substantially the following form in at least 14-point type:
IF YOU PROVIDE MORE THAN ONE-HALF OF THE SUPPORT FOR A CHILD OR OTHER DEPENDENT, ALL OR PART OF YOUR INCOME IS EXEMPT FROM GARNISHMENT UNDER FLORIDA LAW. YOU CAN WAIVE THIS PROTECTION ONLY BY SIGNING THIS DOCUMENT. BY SIGNING BELOW, YOU AGREE TO WAIVE THE PROTECTION FROM GARNISHMENT.
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I’m not an attorney and this article is not legal advice. It is legal information. You should contact your attorney to obtain legal advice with respect to any particular legal issue or problem. The comments made by me and the materials available on this website are for informational purposes only and not for the purpose of providing legal advice. Most of the information you find here is easily available on the internet.
Read the full PDF Flsenate.gov/Session/Bill/2013/0087/BillText/Filed/PDF