Interesting article in the St. Petersburg Times a few days ago I had to share. As Tampa Bay expert short sale listing agent, I know that its a common misconception of homeowners that if they walk away from their mortgage and allow their home to be foreclosed on or if they agree to a deed-in-lieu, that their debt just goes away. Not so. Foreclosure is not like bankruptcy and does not absolve you of the deficiency owed to the lender, and often they will come back to track you down for the money owed years later. This is why its often times in the homeowner’s best interest to do a short sale in which the lender may release the deficiency owed – be sure to hire a Realtor with significant short sale experience! I actually attended a course recently on short sales and learned that over 70% of foreclosed homes were never listed for sale previously as a short sale. It’s become obvious to me that people don’t know there are other options. Please don’t allow the bank to foreclose – I can help! Foreclosure and/or bankruptcy is NOT the only way out – I only wish the author of this piece had mentioned that…
Deficiency judgments let creditors haunt borrowers for up to 20 years
Think of it as Act 2 of Florida’s foreclosure crisis.
In the first act, borrowers lose their homes.
In the next, lenders come after them for the debt still owed.
Unlike a foreclosure, which homeowners dread but expect once they stop making payments, deficiency actions can sneak up on people who thought their problems were behind them when they handed over the house keys.
“People have no idea of all the trouble that’s coming,” said Margery Golant, a lawyer in Broward County who is handling a growing number of deficiency defense cases.
Here’s how foreclosures can turn into a double whammy for homeowners: If, for instance, the mortgage balance was $200,000, but the house was appraised at $100,000 at the time of the court-ordered sale, the bank can ask a judge for permission to go after the borrower for the difference, or “deficiency,” of $100,000.
The deficiency action can be brought by the primary lender, a second mortgage holder, a mortgage insurance company or a government entity like Fannie Mae or Freddie Mac.
In Florida, lenders have up to five years to file a deficiency action, so borrowers can be lulled into a false sense of security. Once a judge grants the deficiency, creditors have up to 20 years to collect the debt and the claim can be pursued even if the borrower moves to states with more restrictive collection laws.
Borrowers might be broke now, but creditors could come after them 20 years later when they have some money saved or a better-paying job.
If the deficiency is pursued by the same party that filed the foreclosure, the borrower is notified by mail, not by a process server. Borrowers who failed to update their addresses with the court might miss the notice entirely and lose the opportunity to challenge the motion. Lawyers say it’s not unusual for borrowers to ignore dunning calls and letters, and only wake up to the dangers of deficiencies after their wages have been garnished….(cont’)