Remedy for foreclosure deficiency judgement for Florida homeowners
Question: What is the remedy for a foreclosure deficiency judgement for Florida homeowners?
Answer: A recent article by a Florida bankruptcy attorney provides an answer:
When the mortgage foreclosure sale has occurred and the bank takes the property back, what are the consequences for a borrower as far as personal liability when the foreclosure judgment amount exceeds the fair market value of the property?
A topic of much consideration by courts, attorneys, banks and homeowners throughout the real estate downturn has been the awarding of a deficiency judgment in a mortgage foreclosure. There is no doubt that Florida mortgage law provides for this remedy.
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Florida statutes provide two ways to obtain this kind of judgment
A deficiency judgment can be sought through the original foreclosure suit or a second separate suit for a deficiency judgment.
Case law in Florida holds that the deficiency judgment is the rule rather than the exception in mortgage foreclosure. The possibility of a deficiency judgment exists when the proceeds from the foreclosure sale do not completely pay off the foreclosure judgment amount.
How to determine if a balance is due
In determining if there is a balance due, the price paid at the foreclosure sale typically plays a central role. However, most certificates of sale issued in a foreclosure suit these days state that the highest bidder placed a bid in the amount of $100. This bid amount does not reflect the fair market value of the real estate even in the current real estate market.
The purpose behind the low bid amount is so the higher bidder at the foreclosure sale can mitigate the amount of doc stamps’ taxes due upon the transfer of the title of the real estate. Therefore if the highest bidder is the foreclosing bank and the foreclosing bank has a judgment amount of $300,000, the foreclosing bank has credit up to their judgment amount.
The doc stamps due on a bid in the full amount of the judgment amount would be $2,100. But if the sale is not contested, the foreclosing bank will make a nominal bid in order to avoid paying a large amount of doc stamps tax.
The mathematical standard to determine the deficiency turns on whether the fair market value of the property on the date of the foreclosure sale is less than the total amount of the foreclosure judgment. If the bid amount at the foreclosure sale is $100, is the borrower responsible for the entire remaining judgment amount minus $100?
The bid amount is not viewed as conclusive of the true value of the real estate on the foreclosure sale date. Thus proof or evidence of the fair market value of the real estate is necessary. More often than not a complete appraisal as well as expert testimony is necessary in these matters to determine value. Once the amount of deficiency is determined and the judgment is granted, the borrower is personally liable for this amount.
Bankruptcy may be ultimate solution to deficiency judgement
A liquidation bankruptcy proceeding will typically wipe out any personal liability for payment of such deficiency judgments. For those who are ineligible for the filing of a Chapter 7 bankruptcy, a Chapter 13 bankruptcy may limit the lender’s recovery on such judgments to a small amount of what is actually owed. But absent a bankruptcy filing, the deficiency judgment can subject certain assets belonging to the former homeowner, that are not exempt, to collections actions.
Cynthia A. Riddell, of the Riddell Law Group, is an attorney whose practice focuses on bankruptcy, foreclosure, short sales as well as other debt related matters. Email: criddell@rlglawfirm.com
Source: http://www.bradenton.com/personal_finance/story/1897971.html
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