Deficiency Judgments after Mortgage Foreclosure Sale

04/02/14

Recent Developments in the Collection of Deficiency Judgments after Mortgage Foreclosure

For the past 30 years in Miami-Dade County, Florida, large mortgage companies and banks have virtually never pursued a "deficiency" judgment after a mortgage foreclosure on a first mortgage.   The best advice at the time was not to be concerned about a deficiency judgment.

Recently though, things have apparently changed.  I recently conferred with a client who received a letter from a company that bought the right to pursue a deficiency after a foreclosure sale. It threatened to sue them for an alleged $200,000 deficiency.

The law firm that wrote the threatening letter was a reputable law firm. I checked out the company that held the debt. It was actually a legitimate company - Dyck O'Neal, Inc. - in Texas - engaged in the business of buying up bad debt of various types for pennies on the dollars for many years.

Deficiency Judgment

A typical residential mortgage foreclosure action usually only seeks a judgment setting a foreclosure sale of the real estate. It does not seek a "money judgment" upon which the mortgage company can seek "execution" or collection of the sum of due.   This judgment of foreclosure only allows the mortgage lender to set a foreclosure sale.  A deficiency judgment can be pursued like any other judgment for a debt.

Limitation on Amount of Deficiency

The new "Florida Fair Foreclosure Act" effective on June 7, 2013 provides a limitation on the amount to be allowed as a deficiency regarding foreclosures of owner-occupied residential real estate. The amount to be awarded may not exceed the difference between the foreclosure 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 the foreclosure sale.

One-Year Statue of Limitations to Seek Deficiency Judgment

The new act also provides in Florida Section 95.11(5)(h) that for actions file on and after July 1, 2013,  a claim of deficiency, subsequent to the foreclosure of one-to-four family residential properties, must be filed within one year from the day after (1) the certificate of title is issued or (2) the mortgage lender accept a deed-in-lieu of foreclosure.  For other actions, a deficiency claim must be brought by the earlier of (1) five years after such action accrued or (2) by July 1, 2014.

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