Understanding deficiencies and the Florida rules which pertain to them are key to avoid getting a deficiency judgment.

What is a Deficiency?

The unpaid mortgage debt associated with a residence is a deficiency.  A bank can foreclose and force a judicial sale of a home if the mortgage borrower fails to pay the associated mortgage debt.  The deficiency is the difference between the proceeds from the sale and the remaining mortgage loan balance. A deficiency can also result from a short sale, which is an alternative to foreclosure.

What are the Florida ‘Rules’ on Deficiencies?

The rules pertaining to deficiencies differ from state to state. A deficiency judgment is when the bank is granted a court order against the borrower to collect on the deficiency amount. In Florida, if the bank is successful in obtaining a deficiency judgment, it will be recorded in the public records and collectable for up to twenty years.  Until the remaining debt is paid, the bank can garnish your wages, bank accounts, and even collect against your estate after you die.

However in other states, all a bank can do is foreclose on your house. Although your credit score will be lowered, in these states they can’t come after you for the deficiency.

If you live in Florida or any state where assets can be seized, it’s crucial to get ahead of the situation. So what should you do?

When to Hire a Foreclosure Defense Attorney?

To avoid the possibility of getting a deficiency judgment, before deciding to walk away from your home, hiring a good foreclosure defense attorney is necessary. Do not simply avoid the bank notices as they come. There are many settlement options available and the last thing you want is to be subjected to the indignity of being enslaved to a debt for up to twenty years after you lose your home.

What Happens if you have a Deficiency?

South Florida Law Blog’s Roy Oppenheim believes if you are facing foreclosure a short-sale, is one such option. Loan modifications or structured foreclosures are other choices that can help you avoid a deficiency judgement.  In the event your bank decides to obtain a deficiency judgment against you, Oppenheim says there are ways to protect yourself from the bank’s attacks.

Deficiency Judgments and Bad Credit Scores

Many strategic default options carry the possibility of lowering your credit score, however, a bad credit score, while certainly not desirable, will have less of an impact on important life events than a deficiency judgment.  The outcome we seek is to make sure that your important events, whether be it a wedding, having kids, or sending them off to college, are not impacted. Your life should not come to a screeching halt because of a potential deficiency judgment, and nearly all of Oppenheim Law’s clients have been able to keep living their lives, provided they came to us early enough in the process.

If you have any specific questions on Florida deficiency judgments, feel free to leave a comment and we will do our best to link you into a future post.

Below are some questions and answers from the workshop:

How does a lawyer get the judge to do the right thing in following their responsibilities of a judge?

If a judge makes a bad decision, a judge can be appealed. If the judge is not following law or makes a bad decision, they can be appealed and the decision can be reversed

What typically happens when the bank trying to foreclose does not own the mortgage? Does it get dismissed until the proper mortgage holder is located?

It should get dismissed as a matter of law. However, judges love to give banks a lot of chances to get it right, so the judges will usually allow the case to continue to the summary judgment stage. At that point, if the bank still can’t produce an assignment then the summary judgement will be denied. This is not good law, but rather the judge made lore that has no precedence other than for appellate courts to tell the lower courts to knock it off. That happens frequently these days, but not often enough.

Around 11 million Americans owe more on their mortgages than their homes are worth. Some economists suggest that the government should encourage banks to write down the principal of some underwater mortgages.

How can you guarantee that you are free from any deficiency judgment with a severely underwater mortgage?

As discouraging it is to lose your place to foreclosure, borrowers may still be liable for the deficiency amount. It’s the difference of what’s owed on the house loan and what the bank could sell for at an auction. “Deficiency judgments” can come after ex-borrowers at any unexpected time frame after they have lost their house.

It can be an unpleasant shock for borrowers who have sold their home via a short sale arrangement where the bank approved selling the property for an amount less than the mortgage debt.

Unlike many other states, in Florida, if you are foreclosed upon and the mortgage balance exceeds the property’s value, the Bank will likely try and come after you for the balance. That process is called a deficiency judgment.

If the Bank gets a deficiency against you, the deficiency judgment will be recorded in the public records and will be collectable for up to 20 years. In fact, even after you die the Bank can collect against your estate.

Unfortunately, when South Florida homeowners walk away from their mortgages without hiring an attorney they expose themselves to the likelihood of having their wages or bank accounts garnished. Oppenheim Law tries very hard to avoid our clients ever being subjected to a deficiency. Whether we end off modifying the loan, arranging a short sale or referring the client to bankruptcy counsel, our Florida foreclosure defense attorneys will not let our clients be subjected to the indignity of having to be enslaved to a debt for up to 20 years after loss of the property.

Oppenheim Law has not yet had a deficiency judgment entered against any of their clients. Some clients only come to our South Florida foreclosure defense attorneys after the bank has foreclosed. Oppenheim Law still defends these clients against the bank’s attempt to have a South Florida deficiency judgment entered against them. We challenge the banks and frequently are able to negotiate an acceptable solution.

Strategic default is increasing daily for those who have no other choice. How can Oppenheim Law help homeowners?

Strategic default, or strategic foreclosure, is a process by which homeowners who can afford to continue making their monthly mortgage payments, make a calculated financial decision to default on their mortgage in order to improve the likelihood of getting out from an underwater property.

Strategic default is also often the first step for homeowners looking to execute a short sale, loan modification or deed-in-lieu of foreclosure. Strangely, banks will usually not even consider a request for any of these real estate options unless a borrower is at least one month behind on their mortgage payments. Homeowners are being forced into default by the banks’ inefficiency and unwillingness to offer meaningful assistance.

After doing the math and watching property values shrink in some instances to less than half of what’s owed on a mortgage, more than 1 million homeowners joined a growing group who have allowed the banks to file foreclosure against them in order to get a strategic advantage in negotiations with the bank.

According to the Chicago Booth/Kellogg School Financial Trust Index, strategic default accounted for one third of all the first quarter foreclosures in 2010.

If strategic default is an option you are considering, it is suggested you consult an attorney. Oppenheim Law can protect your rights during the strategic foreclosure process, prevent deficiency judgments and represent your interests during negotiations with your bank.

Need help? Contact Oppenheim Law today.

Roy offers a free foreclosure defense and real estate workshop on the first Thursday of every month, so make sure you check it out or send your friends next time around.

See below for the tips Roy shared at the workshop and a video of Roy discussing what to do when buying a foreclosure or short sale.

10 Tips to Survive Today’s Florida Real Estate Market

1. Home prices will not increase until the foreclosure rate stabilizes. Watch out for median home prices, they can be very misleading.
2. Sellers should accept multiple offers on their home when doing a short sale.
3. To be approved for a short sale, the seller needs to provide a unique hardship (ie. Loss of income, family member becomes unemployed).
4. Lenders can seek a deficiency judgement even after they issue a 1099
5. Be patient and perform a scrupulous inspection. Roy’s special tip – Spec homes from a builder are your best bet.  You know what you are getting and often times builders offer great deals.
6. Lots of opportunities are available for investors.
7. In the process of foreclosure, defend your home and make the bank prove that they own the note.
8. A homeowner is more likely to get a loan modification approved during foreclosure because of the likelihood of mandatory mediation.
9. Lender’s will most likely not accept a Deed in Lieu if you have a second mortgage.
10. In a Chapter 13 you can possibly wipe out the second mortgage on your home if the property is underwater.

For more insightful tips on real estate and the Florida foreclosure process visit: www.oppenheimlaw.com.