Many homeowners that contact us for help with their foreclosure action do not understand how or when a deficiency judgment applies to them. If you are “underwater” on your home and considering a short sale, offering a deed in lieu of foreclosure or defending a foreclosure action, it is imperative that you understand how deficiency judgments work because it can apply in one of these situations.
What is a deficiency?
A deficiency is the amount that is left due and owing after your home or other property has been sold. Pursuant to the promissory note you signed, it is likely that your lender has the legal right to pursue a deficiency judgment against you because you legally obligated yourself to pay the full amount. However, whether or not the lender decides to pursue the deficiency is another matter.
We have had considerable success in defending foreclosure actions and/or reaching a settlement. We frequently are able to negotiate with a lender to waive their right to collect the deficiency. Of course, the lender does have the ability to report the cancelled debt to the IRS as potentially taxable 1099 income.
When is a lender likely to pursue a deficiency judgment? There are numerous factors that play into a lender’s decision. If there is private mortgage insurance (PMI) involved, the lender will look to the insurance company to be made whole. Insurance companies do not pay the balance of a claim if the insured has agreed to accept less, so if PMI is involved, the lender is more likely to pursue a deficiency judgment.
In Florida, a lender has one year from the date of the foreclosure sale to seek a deficiency judgment based upon the foreclosure action.
If you have questions regarding foreclosures and deficiency judgments, call the knowledgeable attorneys at Faro & Crowder to schedule a free consultation.
The information on this blog or any blog is not intended as, and should not be taken as, legal advice.