Deficiency judgments let creditors haunt borrowers for up to 20 years

St. Pete Times ^ | March 28, 2011 | Kris Hundley, Times Staff Writer

[dawn53]

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.

[dawn53]

I had never heard of this until recently. I was talking to a couple who had sold their home through a bank approved short sale, but were hit with a deficiency judgment.

[driftdiver]

Banks and debt are not your friend.

[HereInTheHeartland]

“Banks and debt are not your friend.”

Why should I pay someone elses mortgage?
I don't want to.
I want my money to stay with me and my family.

[from occupied ga]

Usually part of the short sale process is for the homeowner to sign an unsecured note for at least part of the money the bank is going to lose out on. In reality the property owners DID borrow the money. It wasn't a gift.

OTO the banks did some really stupid things in the first place by going way out on a limb in estimating property values too high even though they knew it was a bubble that was going to burst sometime. The biggest losers are the banks' stockholders.

[org.whodat]

It was capped in Florida at one time at ten years, the cap expired, Rubio when leader refused to redo the cap, now it is twenty and can be renewed for another twenty. In short it is forever., the only state that has a drop dead date on debt collection is north Carolina. Given the federal governments involvement in causing the housing bubble crap one would think, they would put a cap on default judgment's, but don't look for such common sense coming from republicans. But you could call you representative and raise hell.

[Iron Munro]

Why should I pay someone elses mortgage?

BINGO!

[CatoRenasci]

The possibility of deficiency judgments on mortgages varies considerably from state to state: many states, especially in the West, have anti-deficiency statutes dating from the Depression, which forbid lenders from pursuing a deficiency judgment. In some states, deficiency judgments are possible in some circumstances, but not in others, e.g. deficiences might be forbidden on a 'purchase money' mortgage or trust deed, but not if you have refinanced. And, of course, if a senior lender forecloses and junior lenders are wiped out, most often, they can pursue deficiency judgments. You really have to know local real estate and lending law.

The moral of the story is NEVER do a short sale without getting a RELEASE from your lender(s) - unless you're prepared to file bankruptcy to discharge any deficiencies.

[Darteaus94025]

"I want my money to stay with me and my family."

YOU HAVE MONEY?!? Well, then you're rich, and not paying your fair share!

[driftdiver]

“Why should I pay someone elses mortgage?”

Did I ask you to? Most banks are privately owned and/or operated. Even the publically owned ones are largely controlled by a small number of people.

The losses they take should be theirs, just as the profits they make.

Banks love regulation and courts when its on the profit side.

[NonValueAdded]

I heard about this on a radio show on Saturday, but just a few minutes worth. There is a way you can ask the bank to waive or forgive the deficiency as part of the short sale but if not done properly, it sets up a big slug of taxable “income.” What a mess.

[PUGACHEV]

I very seldom see a 1st trust holder go after a borrower after a foreclosure because the bank usually bids the property in for their own claim, thus eliminating and possibility of a deficiency. It's usually the 2nd trust that sues the former homeowner after a short sale or a foreclosure. Realtors don't seem to mention that to their clients.

In fact, I can't see much benefit to a seller in a short sale. It doesn't help their credit, and usually doesn't allow them to escape liability if there is a second trust.

[Notwithstanding]

This is why a lawyer is a good idea in this situation.

You can fight the foreclosure to leverage a stipulation from the bank that there be no deficiency judgment.

[yldstrk]

This is so sad, I feel so terrible for everybody. Things are really scary.

[dfwgator]

Banks love regulation and courts when its on the profit side.

Privatize profits, and socialize losses. Where do I sign up for that deal?

[driftdiver]

Privatize profits, and socialize losses. Where do I sign up for that deal?

Well you're already signed up for the second half of that deal. You have to be in Congress to get in on the first.

[Altura Ct.]

Why should I pay someone elses mortgage?

I agree completely but just who do you think is bailing the banks out?

[Darteaus94025]

"Privatize profits, and socialize losses. Where do I sign up for that deal?"

White House.

[BuffaloJack]

I thought the bailout paid this.
If not, then what was the bailout for?

[pburgh01]

I had a property in Florida back in 2008, we had an ARM, it blew up, our renters moved out, we went from +600 a month positive cash flow to -$2100 after they left and our ARM went from %6.0 to %9.5. Well the best free advice I got was from a realtor friend of mine, GET AN ATTORNEY. I got one I got on referral, paid a $1500 retainer for 15 hours and agreed to 150 per hour after that. Well it took all of 6 hours of his time, we played hardball, and threatened bankruptcy to big bad Bank of America, that they would be stuck with an REO, a 150 per month lawn maintenance bill or face a 100 per dollar fine for a nasty lawn AND and get this maybe a lawsuit for a shaddy mortage. We let them know, there would be no money froma deficency judgment and they would lose 10's of thousands on the house, despite what rosey math their attorney was feeding them. Well they folded like a cheap tent in 2 weeks and the short sale took 2 months and we had NO deficency clause. They even offered to refi at 5.00 fixed for 30 years..ummm too late. Punchline is if you must short sale, get an attorney and don't deal with some 9 dollar an hour Ebonics speaking Shamiqua in CS at you your bank. Let them know you will do everyting short of breaking the law to make the transaction as difficult as possible and make it a loser for them. Best 600 bucks I ever spent, why get agita, pay someone to get it for you.

When in a pissing contest it's best to be the skunk....

[dawn53]

I think these folks that told me about it had the defiency judgment on their original mortgage, but it was with a smaller bank.

In Florida prices have dropped about 50 percent from the peak in 2006. These folks did it right, put large down, affordable payments...until unemployment took it’s toll.

Sad part is the bank absolutely would not work with them on lowering interest rate (they weren’t asking for principle reduction.) And in Florida where our insurance seems to go up every year, and assessments downward haven’t kept up with the market so taxes are still pretty high, it’s pretty hard for folks that lose their income. So they sold on a short sale, the bank okayed a low ball offer, and then hit them with the deficiency judgment.

I sort of agree with this type of judgment but wonder why the bank isn’t willing to deal with the present homeowner who’s current on their mortgage but struggling.