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?
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.