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Florida Mortgage Deficiency Balance

What is the rule regarding deficiency balance on homes in Florida? What happens if I walk away from my home?

What is the rule regarding unsecured balance or deficiency balance on homes in Florida? My home is now valued far below the amount of the mortgage. What happens if I walk away from it?

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Highlights

  • Florida does not protect homeowners who have a deficiency balance.
  • A deficiency balance is eligible for inclusion in a bankruptcy.
  • Try to avoid a foreclosure, by attempting a short-sale.

If a home is foreclosed upon, the mortgage lender usually auctions the property at a foreclosure sale, applying whatever amount is received at the foreclosure sale to the debt owed on the mortgage. In many cases, the sale price at auction is not sufficient to cover the mortgage and other secured liens on the property, such as home equity loans; the difference between what you owe on the property and what the lenders actually receive is called a deficiency balance. In Florida, mortgage lenders can pursue borrowers for deficiency balances resulting from foreclosure on mortgage and home equity loans. Whether or not a deficiency is created on any of your loans will depend on the total amount of your loans compared to the value of the home; since your home is worth less than the total amount of your loans, your loans will probably not be covered by the auction sale price. If you would like to read more about the foreclosure process, I encourage you to visit the Bills.com foreclosure page.

If you decide to allow your home to go into foreclosure, and assuming that the foreclosure sale does not cover the full amount of your mortgage or home equity loan, you will likely own a deficiency balance, which the lender could attempt to collect. Its collection efforts could range from simple collection calls and collection letters all the way to filing a lawsuit against you for the balance owed. If the creditor does try to sue you, and if the court grants it a judgment against you, the creditor may be able to garnish your wages, place levies on your bank accounts, and place liens on any real property you own. You may be able to work with the creditor to repay the debt to prevent the negative consequences of the creditor’s collection efforts. From my experience, most mortgage and home equity lenders are willing to offer flexible repayment terms to borrowers who have defaulted on their loans. However, if you find that the deficiency balance claimed is too large to pay off within a reasonable time frame, or if the creditor is unwilling to work with you to establish workable payment terms, you may wish to consider filing for bankruptcy protection to resolve your deficiency balance. I strongly encourage you to consult with a qualified attorney in your area if you are considering filing for bankruptcy protection. In addition, I invite you to visit the Bills.com bankruptcy page.

Before you consider surrendering the property to your lenders, you should do everything in your power to sell the home. If you can find a buyer, you should be able to rid yourself of the home without the credit damage caused by a foreclosure. You also may be able to pay off your mortgage loan and free yourself from these obligations. For information about ways to stop foreclosure, you should review the foreclosure information from the US Department of Housing and Urban Development Avoiding Foreclosure page. You mentioned Florida in your question. See the HUD Avoid Foreclosure: Florida page to learn more about local assistance.

Unfortunately, in the current housing market, many homeowners find themselves owing more on their mortgages than their homes are worth, a situation which the mortgage industry refers to as being “upside down” or “under water” on a mortgage. Even if you cannot find a buyer willing to pay enough for the home to pay off what you currently owe, you still may be able to sell the property for less than your mortgage balances, though you will need to negotiate an agreement with your lenders to accept less than the balance of the note to pay off the loans. Selling a home for less than the balance owed on the mortgages is called a “short sale;” such transfers must be approved by the lenders prior to the sale. Lenders that agree to short sales will frequently forgive any balance remaining on the note after the sale proceeds are applied, though they usually require borrowers to provide documentation of financial hardship, such as job loss or unexpected illness, before they will approve a short sale. You or your attorney should contact your lenders to discuss selling your property in a short sale if you think that may be a workable option for you.

I encourage you to explore all options available to you to avoid voluntary surrender or foreclosure of your home, as losing your home will likely hurt you financially and negatively impact your credit rating for as long as seven years. These credit problems could prevent you from qualifying for a mortgage for a new home, cause you problems leasing an apartment, and force you to pay significantly higher interest rates for any credit you are able to obtain, which could cost you thousands of dollars in interest charges over the next few years.

I wish you the best of luck in resolving your financial troubles, and hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

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12 Comments

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  • MR
    Oct, 2011
    maureen
    Jacksonville, FL
    on March 8, 2010, before the july 2010 law changes in FL, you posted a statue that seemed to allow deficiency lawsuits against mortgage holders who walked away from their homes, which fell into foreclosure. How has the law changed in terms of/ in favor of anti-deficiency laws?
    0 Votes

    • BA
      Nov, 2011
      Bill
      I am unaware of any recent changes to Florida's anti-deficiency law, which I find at Florida Title 40, 702.06.
      0 Votes

    • MR
      Nov, 2011
      maureen
      Jacksonville, FL
      I have read that statute and i don't understand it. can you explain it in layman's terms please?
      0 Votes

    • BA
      Nov, 2011
      Bill
      State law permits deficiency judgments subject to the borrower receiving credit for the greater of fair market value of the property or the foreclosure sale price. Consult with a Florida lawyer who has experience in real property loan for advice tailored to your exact circumstances.
      0 Votes

  • TH
    Feb, 2011
    Tom
    Saint Petersburg, FL
    Hi, I live in Tampa, Florida. About two years ago, I lost my job and I filed bankruptcy ten months ago. I bought the house 1997 worth $140,000 . Now the house value is about $80,000 and I still own the mortgage more than $120,000.Now I want to walk away from mortgage. What should I do ? and Would it affect on my job ( I just found a job, and the money I am marking only enough to pay to share the room when i walk away from mortgage). And I have not paid my mortgage two months already. I need some advice. Thanks.. Tom
    0 Votes

    • BA
      Feb, 2011
      Bill
      I advise you to meet with an attorney. The fact that you filed bankruptcy recently means you cannot file another bankruptcy for a period of time. Has your bankruptcy discharged? Did you discuss the facts of your underwater home with your bankruptcy attorney?

      If your bankruptcy has not discharged, you may want to stop your case until you can include any deficiency balance that will remain after your home is auctioned and the proceeds applied to the more than $120,000 that you owe. If your case has discharged, I still advise meeting with a bankruptcy attorney. Perhaps with some pre-bankruptcy planning and creative filing techniques, you and your attorney can find a way to protect you as best as possible. Meeting with a qualified attorney will also educate you about what kind of actions your creditors can take against you.
      0 Votes

  • SS
    Jan, 2011
    stacy
    Belleplain, NJ
    We own a second home in Florida (not our primary residence) and are looking into short sale vs. deed in lieu. Apparently we will not qualify for the Mortgage Forgiveness Act since it is not our primary residence. I understand that we would be taxed on the deficiency balance with a short sale (?correct?) but what would our deficiency balance be with a deed in lieu? Would it be the entire amount that we have left on our mortgage??
    0 Votes

    • BA
      Jan, 2011
      Bill
      There are no universal short sale or deed-in-lieu-of-foreclosure contracts. If a mortgagee is participating in HAFA, it may not collect on a deficiency balance for a short sale. However, if it is not participating in HAFA, then it may. Regarding a deed-in-lieu-of-foreclosure, the answer to your question is found in the contract you negotiate with the mortgagee. If you make a financial disclosure that accurately states you have no assets and limited income, then it is more likely the negotiator at the mortgagee will throw up his or her hands and will write in language that cancels the deficiency balance. However, if you have assets the negotiator thinks are available to satisfy the deficiency, then there is a greater chance your contract will give you liability for the deficiency.
      0 Votes

  • BA
    Mar, 2010
    Bill
    To the best of my knowledge Florida does not have an anti-deficiency statute. Please see Florida §702.06 Deficiency decree; common-law suit to recover deficiency to read the statute. If my reading of the statute is correct, Florida homeowners have liability for a deficiency balance/judgment.
    0 Votes

  • 35x35
    Mar, 2010
    Gary
    Does Florida have an anti deficiency statute- in other words, if the loan was the borrowers original purchase money loan (no refi) does the bank still havethe right to seek a deficiency judgement? thanks
    0 Votes

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