Florida Laws on Post-Foreclosure Deficiency Judgments

Homeowners who lose their property in a foreclosure in Florida may be liable for any mortgage deficiency.

Florida was one of the states hit hardest in the recent economic downturn. Property values were reduced to amounts far below many mortgage debt balances. That reduction in value is what lenders seek to recoup when they pursue a deficiency judgment as part of the foreclosure process. A deficiency judgment is the monetary amount that the borrower is personally liable to pay if the proceeds from a foreclosure sale do not cover the entire debt.

Deficiency Judgments After Foreclosure

A foreclosure does not automatically create a deficiency judgment in the state of Florida. The foreclosing party may obtain a deficiency judgment as part of the foreclosure action (if the borrower was personally served the foreclosure complaint) or it can file a separate lawsuit for the deficiency (unless the court in the foreclosure action granted or denied a claim for a deficiency judgment).

As of July 1, 2013, the period of time in which the lender may seek a deficiency judgment was reduced from five years to one year for residential properties with no more than four dwelling units. The one-year time frame starts on the day after the court clerk issues a certificate of title to the buyer who purchased the home at the foreclosure sale.

Promissory Notes and Mortgages

When you take out a loan to purchase a property, there are two documents that will be signed: the promissory note and a mortgage. The promissory note is the promise to pay the debt. The mortgage is the document that pledges the parcel of property as security for that debt. In Florida, a deficiency judgment is available following a foreclosure sale if personal service was obtained on the borrowers--that is, those persons who signed the promissory note. A process server or a law enforcement agent must personally serve a copy of the complaint for foreclosure, summons, and lis pendens (the document that is recorded in the county records as notice that a lawsuit has been filed against the property) on the borrowers in order to obtain the deficiency judgment.

Who is Most at Risk?

Homeowners who are financially secure but chose to strategically default, or “walk away,” because their property lost so much value are at the most risk of deficiency judgments. In making the decision whether or not to move for a deficiency judgment, lenders may pull a borrower’s credit report to see if the borrower strategically defaulted. If all of the borrower’s other debts are paid up to date, then the lender can be reasonably certain that there was a strategic default and they are much more likely to pursue the deficiency judgment.

Once the deficiency judgment is obtained, the bank can file that judgment in the public records and that creates a lien against any other real property owned by the borrower. Another possibility is that once the lender obtains a deficiency judgment, it may sell that deficiency judgment to a collection agency. While lenders may not want to take the time to track down borrowers to collect payment for the deficiency judgment, collection agencies have extensive resources to pursue borrowers and attempt to collect on those debts.

Deficiency Judgments After Short Sales and Deeds in Lieu of Foreclosure

Deficiency judgments may occur following short sales and deeds in lieu of foreclosure in Florida as well. Short sales and deeds in lieu of foreclosure always involve a release of the lien created by the mortgage, but they will not always result in a complete satisfaction of the promissory note. To eliminate the possibility of a deficiency following these actions, the borrower must take careful steps to negotiate that the transaction is in full satisfaction of the debt when dealing with the lender. The documents must expressly state that part of the consideration for the short sale or deed in lieu of foreclosure is that the promissory note is satisfied in full. Without this language, the lender may attempt to obtain a deficiency judgment at some point in the future. If the lender refuses to agree to a full satisfaction of the debt, the borrower can always offer to repay a smaller portion of the debt and negotiate a new promissory note for that amount.

For More Help

If you are facing the possibility of a deficiency judgment in Florida, it would likely be beneficial to hire an experienced attorney who can defend against the deficiency, negotiate a settlement so that the deficiency is minimized, or assist in arranging a short sale or deed in lieu of foreclosure that is in full satisfaction of the debt. For more information on Florida deficiency judgments, refer to Florida Statutes Annotated, Sections 702.06 and 45.031(8).

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