June 1, 2014

Fighting a Deficiency Judgment Following Florida Foreclosure

In the state of Florida, lenders have the right to pursue deficiency judgments against homeowners following foreclosures or short sales. That is, the bank can seek to recover the difference between the value of the original loan and the amount for which the property later sold at foreclosure auction or short sale.

For some people, this can result in payments of hundreds of thousands of dollars. A judgment against you could mean that the bank could seek to demand payment of the remaining balance through your personal assets or other means.

In the wake of the housing crisis, our Broward County foreclosure defense attorneys in Fort Lauderdale know that banks haven’t made this a top priority in a lot of cases because, frankly, not many people could have afforded to pay anyway. In cases where deficiency judgments were pursued in the past, it was more likely the case that debtors had substantial other assets that could have been targeted to satisfy the remaining debt.

Now that the winds of the crisis are settling, banks are more frequently pursuing deficiency judgments, though as of July 1, 2013, per a new state law, they have just one year to do so from the time of foreclosure.

Recently, the Florida Fourth District Court of Appeals ruled in favor of a bank seeking to collect deficiency judgments against three borrowers, reversing an earlier finding that the sale price and appraiser affidavits did not establish the fair market value of the property.

The case, Vantium Capital, Inc. v. Hobson, stemmed from the final foreclosure judgments in three cases. In the first case, the foreclosure judgment indicated the homeowner owed $200,000, though the home only sold at auction for $163,000. The second foreclosure judgment was entered for $276,000, though the home only sold in a foreclosure auction for $21,000. In the third case, the judgment was granted for $200,000, but the home only sold at auction for $22,000.

None of the three debtors appeared at the hearings for the deficiency judgments. This is a critical mistake many homeowners make. They assume that because the foreclosure action is finalized, there is nothing more about which they need to be concerned. This is absolutely not true, and it can end up being an expensive lesson.

Here, the bank established the foreclosure amounts for each property, and then offered appraiser affidavits that it said indicated the fair market value of the properties. Only one of the three homeowners had submitted a separate independent appraisal, which indicated the home was worth more than the bank-stated appraisal indicated.

The trial court denied the deficiency judgment, indicating that the bid price had been the only thing established. Further, the court said affidavits of appraisers would not be accepted in lieu of live testimony.

The court subsequently denied the bank’s motion for a rehearing.

The bank appealed, arguing that the trail court failed to follow state law and abused its discretion.

The appellate court agreed.

Pointing to the 2000 decision in Ahmad v. Cobb Corner, Inc., the appellate court held that when the total amount of debt secured by a property lien is more than the fair market value on the property at the time of a foreclosure sale, the grant of a deficiency judgment should be considered the rule rather than the exception.

The court also pointed to previous case law indicating that there is a legal presumption that the foreclosure sale price equals the fair market value of a property, and the onus is on the homeowner to prove otherwise.

Of course, we all know that in actuality, foreclosures sell for far less than a home might actually be worth. But homeowners are still going to be stuck paying the difference. So the bottom line is that unless you make it a point to fight back in a deficiency judgment case, you will likely end up paying a larger sum than you might otherwise.

A bank cannot secure a deficiency judgment without first taking the matter to court. This means you have the opportunity to fight back. We encourage you to avail yourself of that right.