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How to Get a Deficiency Judgment After a Foreclosure Sale
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How to Get a Deficiency Judgment After a Foreclosure Sale

January 28, 2021 Banking & Financial Services Industry Legal Blog

Reading Time: 5 minutes


When a lender obtains a final judgment of foreclosure from the court, the mortgaged property is sold at public auction and, if bought by someone other than the foreclosing lender, the proceeds are applied to the debt owed by the delinquent borrower. However, sometimes the sale proceeds are insufficient to satisfy the full amount of debt owed. In this event, Florida law permits a lender to get a deficiency judgment against the borrower for the amount of the final judgment of foreclosure minus the fair market value of the property at the date of the sale.

deficiency judgment foreclosure sale final judgment of foreclosure

Procedure For Getting a Deficiency Judgment

There are two ways a lender can get a deficiency judgment in Florida:

  1. The lender can bring a motion for deficiency judgment as part of the mortgage foreclosure action; or
  2. The lender can bring a separate action for deficiency judgment, unless the court in the mortgage foreclosure action has granted or denied a claim for a deficiency judgment. 702.06, Fla. Stat.

It is important to note that entitlement to a deficiency judgment is the rule rather than the exception, and is within the sound discretion of the court. § 702.06, Fla. Stat; Lloyd v. Cannon, 399 So. 2d 1095, 1096 (Fla. 1st DCA 1981) (“Absent such equitable considerations, the granting of a deficiency judgment is the rule rather than the exception.”). A deficiency only exists when the property’s fair market value is less than the amount secured by the final judgment of foreclosure. Usually, a Florida court will grant a deficiency judgment, unless the market value of the foreclosed property at the time of the sale equals the amount of the final judgment of foreclosure, or particular equitable defenses are sustained. Reid v. Compass Bank, 164 So. 3d 49, 57-58 (Fla. 1st DCA 2015).

In addition, if the foreclosed property is a one-family to four-family dwelling, the deficiency action must be brought within one (1) year after the day the certificate was issued by the clerk of court, or the day after the mortgagee accepted a deed in lieu of foreclosure. § 95.11(5)(h), Fla. Stat.

Amount of Deficiency Judgment

The amount of a deficiency judgment is limited to “the difference between the judgment amount, or in the case of a short sale, the outstanding debt, and the fair market value of the property on the date of sale.” § 702.06, Fla. Stat. The purchase price of the property at a foreclosure sale is irrelevant in calculating a deficiency judgment. For example, if the lender obtains a final judgment of foreclosure for $200,000, the fair market value of the property at the date of sale is $200,000, and the property is sold at foreclosure for $100,000, there is no deficiency. A deficiency exists only when the judgment amount is more than the fair market value of the property on the date of the foreclosure sale, which is not determined by the foreclosure sale price.

The lender seeking a deficiency judgment has the burden of proving that the fair market value of the foreclosed property on the date of the sale is less than the total amount owed, as secured by the court in the final judgment of foreclosure. Empire Developers Group, LLC v. Liberty Bank, 87 So. 3d 51, 53 (Fla. 2d DCA 2012) (“[T]he party seeking a deficiency judgment has the burden of proving that the fair market value of the property foreclosed upon was less than the total mortgage debt owed.”); Morgan v. Kelly, 642 So. 2d 1117, 1117 (Fla. 3d DCA 1994) (“[T]he correct formula to calculate a deficiency judgment is the total debt, as secured by the final judgment of foreclosure, minus the fair market value of the property, as determined by the court.”).

The lender must provide evidence of the fair market value by obtaining an appraisal, as of the date of the foreclosure sale. If the appraisal date is not the date of the foreclosure sale, the lender may be required to provide testimony that links the value of the property on the date of the appraisal to the value of the property on the date of the foreclosure sale. Id.  However, if the date of the appraisal and the date of the foreclosure sale are close together, the court may decide to consider the appraisal. For example, in 743 Mahoney, LLC v. MDC 5, LLC, 204 So. 3d 116, 118 (Fla. 2d DCA 2016), the court held that an  appraisal six days after the date of the foreclosure sale was relevant in calculating deficiency, without having an expert explain whether the intervening days affected the value of the property.

Collecting the Deficiency Judgment

When the lender receives a deficiency judgment from the court, it can proceed to collect on that judgment against the borrower using conventional collection methods. For example, the lender can get a judgment lien against the borrower’s personal property, garnish the borrower’s wages, and/or levy the borrower’s bank accounts.

Conclusion

If the foreclosure sale proceeds are insufficient to satisfy the full amount of debt owed, lenders can apply to the court for a deficiency judgment. However, the amount of a deficiency judgment is determined based on the fair market value of the property at the date of the sale, and not the foreclosure sale price.


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