Deficiency Judgment: You May Owe More than Your Home

If you’re like most people, when you hear the word foreclosure you think of the loss of a home.  But when a foreclosure action is instituted against borrowers who own an underwater home, there’s also a risk that the borrower’s could lose their home and be subject to a judgment against them for money owed in addition to turning over the home.  This is called a deficiency judgment.deficiency judgment

Deficiency Judgment

In past Florida foreclosure blogs, we’ve briefly discussed deficiency judgments but it’s worth reviewing.  When a borrower enters into a mortgage agreement to buy a home, they are really entering into two agreements: a loan agreement and a security agreement.  Under the loan agreement, the lender is giving the borrower the amount of money they need to purchase the home and the borrower is agreeing to repay that amount.  The security agreement deems the home security for the loan and allows the lender to foreclosure if payments aren’t made under the loan.
In an ideal foreclosure, if you can have such a thing, the value of the home at least equal to the amount still owed on the loan and the loan is essentially paid off when the lender obtains the home.  However, in Florida’s current economic atmosphere where many homes have still not regained their pre-2008 value, the home isn’t always worth as much as the remaining balance on the loan.  In other words, even after the home is turned over, the lender still has not received enough value to pay off the loan.  In such a situation, the lender can pursue a “deficiency judgment,” a court order stating that the borrower owes the lender the amount that was not covered by the transfer of the home, and then take actions to try to collect on that judgment.

 Florida Homeowners Still Being Pursued for Deficiency Judgment

Whether to pursue a deficiency judgment is largely within the lender’s discretion although, there are some protections, like a recently shortened statute of limitations (down to one year), that help protect consumers from being surprised with an action for a deficiency judgment after they thought they had moved past their foreclosure issue.
Even as the housing market and economy recover, lenders are still pursuing these actions and homeowners facing or involved in a foreclosure action should be aware of the risk.  What’s more, is sometimes lenders utilize third party collectors to collect the judgment.  Dyck-O’Neal, has become one of the most well-known collectors of such judgments and for good reason. It is estimated that the company has filed thousands of deficiency actions in Florida.
Dyck-O’Neal and others, including lenders themselves, have met with mixed results in pursuing deficiency judgments.  As with all litigation, there are defenses borrower’s can assert in deficiency judgment cases.  Statute of limitations and jurisdictional issues have been the most successful ones, overall.  The likelihood of success depends on the facts of the case as well as the court.  For example, earlier this year, in Reid v. Compass Bank, the Florida’s First District Court of Appeal came down in favor of the borrower who asserted a jurisdiction related defense while just last month in Garcia v. Dyck-O’Neal, Inc, the Third District court of Appeal rejected a jurisdiction based defense and found in favor of the Dyck-O’Neal.

 Weighing Deficiency Judgment Options

If you are facing the possibility of foreclosure, there may be options available that can rule out the possibility of a deficiency judgment.  If you’d like to discuss those options, the Jacksonville foreclosure attorneys at Adam Law Group would be happy to speak with you. Typically, the earlier you begin to take action, the more options you have available.