Florida is at or near the top of the charts in regard to the number of foreclosure filings, the number of properties sold at foreclosure sales, and the total number of distressed properties. As the foreclosure process shakes out, many homeowners have decided to “walk away” and simply allow the house to be taken back by the bank. Many lenders have, at this time, decided to simply get the property back without pursuing collection efforts. There are, however, other rights that the lender retains to collect the full amount that is due even after the property is sold at a foreclosure sale.
In Florida, a lender may seek a deficiency judgment if the foreclosure sale bid price does not equal or exceed the amount owed under the judgment of foreclosure. Warehouses of Florida, Inc. v. Hensch, 671 So.2d 885 (Fla. 5th DCA 1996); Provident National Bank v. Thunderbird Associates, 364 So.2d 790 (Fla. 1st DCA 1978); Patron v. American National Bank of Jacksonville, 382 So.2d 156 (Fla. 5th DCA 1980). Generally, the measure of the amount of deficiency to which the lender is entitled is the difference between the amount of the foreclosure judgment and the fair market value of the property on the date of the judicial sale. Hatton v. Barnett Bank of Palm Beach County, 550 So.2d 65 (Fla. 2d DCA 1989); Fara Mfg. Co., Inc. v. First Federal Sav. and Loan Ass’n of Miami, 366 So.2d 164 (Fla. 3d DCA 1979); Norwest Bank Owatonna, N.A. v. Millard, 522 So.2d 546 (Fla. 4th DCA 1988).
This means that, unless a third party buys the property at the foreclosure sale for the full amount of the mortgage debt at the time of the judgment, the borrower is still liable for a money judgment (called a “deficiency judgment”). In today’s market where almost all of the properties sold at a foreclosure sale are “under water,” the lender ends up owning the property and there remains a debt. The lender, therefore, retains the right to get a judgment and try to collect this debt unless the lender and borrower reach some kind of alternative agreement. As a result, a borrower is potentially liable for a debt of hundreds of thousands of dollars after the foreclosure sale.
The deficiency judgment may be sought in the foreclosure action or in a separate action. §702.06, Fla. Stat. (2012). If the deficiency is sought in the foreclosure action, then the time for filing the requisite separate motion for deficiency depends on whether the final judgment reserves jurisdiction to enter a deficiency judgment. If jurisdiction is not reserved, the motion must be filed within 10 days of the issuance of the certificate of title. Frumkes v. Mortgage Guaranty Corp., 173 So.2d 738 (Fla. 3d DCA 1965); Katz v. Kolish, 142 So.2d 759 (Fla. 3d DCA 1962).
If jurisdiction is reserved (which is typical), and the case was filed before July 1, 2013, then the lender retains the right to come after the borrower for up to five years in certain circumstances. As of July 1, 2013, for all new foreclosure cases filed, there is a one-year statute of limitations for an action to enforce a claim of a deficiency related to a note secured by a mortgage against residential property that is a one-family to four-family dwelling unit. The limitations period begins on the 11th day after a foreclosure sale or the day after the mortgagee accepts a deed in lieu of foreclosure.
The right to seek a deficiency judgment still exists even if the property was sold as part of a short sale (unless the lender and borrower agree in writing that the lender waives its right to seek a deficiency judgment). A short sale in Florida can be completed by simply allowing the mortgage lien to be released while the obligation to pay under the note still remains with the borrower. A recent change in the law limits a deficiency decree in the case of an owner-occupied home to the difference between the judgment amount, or in the case of a short sale, the outstanding debt, and the fair market value of the property on the date of sale. It is very important for both lenders and borrowers to know their rights and understand the costs, risks and burdens of reaching any agreement.