What is a Deficiency Judgement?
Losing your home isn’t the worst thing that can happen in a foreclosure. In an increasing number of cases, lenders are aggressively pursuing “deficiency judgments” against borrowers after a foreclosure, deed-in-lieu or short sale.
A deficiency judgment is a personal judgment against you for the difference between a home’s sale price and the original loan balance. Because housing market values dropped so substantially in Florida over the last several years, borrowers have been slapped with enormous deficiency judgments – in addition to costs associated with litigation. A deficiency judgment against you can result in garnished wages, levied bank accounts and seizure of personal property.
The Miami foreclosure defense lawyers at Jacobs Keeley know the best way to ward off a deficiency judgment is to involve a lawyer early in the process. A key part of negotiating a foreclosure settlement is to eliminate the risk of a deficiency judgment.
Just because a lender can initiate a deficiency judgment action doesn’t mean it will.
The three biggest mortgage lenders – Citigroup, Bank of America and Wells Fargo & Co. – all say they don’t typically pursue deficiency judgment, though they reserve the right.
The cases most likely to be targeted by deficiency judgments are those in which borrowers chose strategic default, rather than cope with a property that had lost so much value. While a lender can technically pursue any borrower for deficiency judgment, they are more likely to go after those who “walked away” via strategic default. Banks will analyze whether all other debts are paid up-to-date in making this determination.
If a judgment is secured, there’s a good chance it will be forwarded to a collections agency with extensive resources to pursue borrowers.Deficiency Judgment After Foreclosure
A foreclosure in Florida doesn’t automate a deficiency judgment. The lender can choose to pursue deficiency either as part of the foreclosure action, or as a separate lawsuit, assuming it has not otherwise agreed to refrain from doing so.
Let’s say you took out a $200,000 loan for your home. You put $20,000 down. But you got behind on the payments, the home is foreclosed and sells at auction for $150,000. The deficiency is $30,000. The bank could assert you are responsible for paying this money.
Deficiency judgments are valid for up to 20 years, or until they are resolved.
In Florida, lenders are required to go to state court to obtain a deficiency judgment. Effective July 1, 2013, lenders in this state have just one year from the date of foreclosure in which to file a claim for deficiency judgment. (This applies only to residential properties with no more than four dwelling units.)Defending Against Deficiency
Ultimately, the judge has discretion in determining final deficiency amount, taking into account the fair market value of the home and the borrower’s ability to pay. Still, large lenders have skilled teams of well-heeled lawyers and financial analysts. Going toe-to-toe with these companies in court can be disastrous if you do it alone.
The foreclosure defense attorneys at Jacobs Keely have assisted countless borrowers in deficiency actions. If the action is attached to a foreclosure, we can often negotiate a settlement that includes an agreement by the bank not to seek a deficiency judgment. We demand documents and ask the lender the tough questions before they can sell your home.
Those working through short sales or deeds-in-lieu of foreclosure should also consult with us to discuss minimizing the risk of a deficiency judgment. These deals may involve the release of the lien, but not always the full satisfaction of the promissory note. Attorney intervention is necessary to protect borrower interests.
In cases where deficiency action is filed separately, there are a number of possible effective defenses.
One of those is presenting a defense of contributory negligence. The assertion is that through the lenders’ own conduct of knowingly deviating from sound lending standards during the housing bubble, they contributed to the likelihood of a deficiency. Therefore, the thinking goes, the lender should be held at least partially if not wholly responsible.
A judge may also be swayed if presented with evidence that burdening the borrower with such a payment would result in undue hardship. Although lenders and mortgage servicers are not eager to withdraw these rights to deficiency, there may be some cases in which they are compelled to do so.
For example, Fannie Mae in Servicing Guide Announcement SV-2014-16 authorized servicers the right to waive deficiency judgments in order to help resolve foreclosure delays based on individual borrower circumstances. The rule is solely applicable to conventional mortgage loans. Still, Fannie Mae remains one of the most aggressive deficiency judgment pursuers. The Federal Housing Finance Agency reports that of the nearly 600,000 foreclosures the company initiated between January 2010 and June 2012, nearly 300,000 were referred to debt collectors for possible deficiency judgment.
Just in the last 12 months in Florida, it is estimated 10,000 deficiency judgments were filed.
Your attorney should look to see whether any offsets received by the lender bar a deficiency claim. Lenders can’t double-dip and collect more than once for the same alleged damages. So if the lender received bailout funds, proceeds from credit-default swaps or FCIC loss-sharing recoveries, deficiency judgment in your case could be prohibited. Uncovering these alternative sources of recovery will be the responsibility of your foreclosure defense lawyer during pre-trial discovery.
If you're battling foreclosure or deficiency judgment in Miami or the surrounding areas contact Jacobs Keeley Trial Lawyers for a confidential appointment to discuss your rights.
Call us at (305) 358-7991.