If you’re a homeowner with a mortgage loan, you’ve possibly heard about deficiency judgments. If you’re a borrower, the term “deficiency judgment” is something you never want to hear, as we will explain below. In this post, we will go over the basics of these judgments and then briefly discuss possible defenses which can be raised by borrowers.
The Basics of Deficiency Judgments
Secured loans refer to loans which are backed by collateral. Common secured loans include automobile and other vehicle loans, and mortgage loans. When a borrower defaults on his or her loan obligations, and then the collateral is seized by the lender, the lender will then sell the collateral in order to cover the difference between what has been paid and what is still owed. If a lender transferred $200,000 mortgage loan to a borrower, and then the borrower defaults while still owing $100,000, the lender will attempt to recoup this $100,000 balance by selling off the house. In this type of situation, the sale of the house is referred to as a foreclosure sale, and this sale often takes the form of a public auction.
Whenever there is a remaining balance after a foreclosure sale, this balance is referred to as a “deficiency,” because the lender hasn’t been made completely whole. In many jurisdictions throughout the country, but not all, lenders can attempt to collect this deficiency directly from the former borrower following the sale. A “deficiency judgment” is simply an order issued by a court which recognizes this debt owed by the borrower. Lenders can try to collect the deficiency through one of several possible means, including wage garnishment, bank account seizure, and so forth.
Defenses to Deficiency Judgments
Whether a viable defense can be brought against a motion for a deficiency judgment (i.e. the motion which leads to the hearing on the issue) in Florida is a complex matter. In some ways, the range of potential defenses is impacted by the motion itself; more precisely, it can be impacted when a new lawsuit is filed to recover the deficiency. In any case, generally, one of the only viable defenses relates to the amount owed, and the way to put forth this defense is with a counter appraisal prepared by an independent expert. Basically, you need to show what the value of the property was on the date of the foreclosure sale.
If you can demonstrate that the value of the property was less than what is claimed by the lender, then you may be able to reduce or eliminate the deficiency. If, for instance, a house sells for $35,000 in a foreclosure sale, but the borrower owed $80,000, this remaining balance of $45,000 might be reduced if an appraiser shows that its value was less than $80,000 at the time of the sale. If the house’s true appraised value was actually $50,000 at the time of the sale, then the difference would only be $15,000.
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