Deficiency Judgments

Deficiency judgments in Florida are becoming more and more prevalent.

A deficiency judgment is a judgment that a mortgage company, or anyone who purchases the debt from them, obtains when they sue a debtor after a foreclosure has occurred. Here is how a deficiency judgment occurs; a debtor purchases a home for $300,000 and after a few years of non-payment the debtor loses the home to foreclosure. Once the house is lost to the foreclosure its ownership is returned to the mortgage holder (typically the bank).

The banks don’t want to keep these homes so they will sell them at an auction. The sale price at the auction is usually going to be substantially less than what the debtor owed on the home. So, continuing with the example above, the bank takes possession of the $300,000 home but when it is sold at auction the home is only sold for $175,000 a difference of $125,000. The $125,000 is what is known as a deficiency.

Once the home is sold, the bank must determine what it wants to do with the $125,000 that the debtor owes to it. The bank can:

  1. Write off the deficiency as bad debt for a tax break. If a debtor’s deficiency is written off as bad debt they will be mailed a 1099 tax form and may have severe tax problems. If the bank has written off your deficiency you should immediately seek the assistance of qualified CPA.
  2. The bank can sue you, or sell the debt to a debt collector to sue you, in an attempt to collect the debt from the debtor.

If the bank sues the debtor they will be able to obtain a judgment for the amount of the deficiency plus interest and that judgment will be good for 20 years. The judgment holder can attempt to collect on deficiencies by:

  1. Garnishing the wages of the debtor
  2. Freeze the bank accounts of the debtor
  3. Levy the property of the debtor

So what should you do if you are facing a deficiency lawsuit, or already have a deficiency judgment against you? One of the options that you may choose to utilize is to file for bankruptcy. The filing of bankruptcy after a foreclosure, after a deficiency lawsuit has been filed, or even after a deficiency judgment has been entered against you, can unwind or prevent the creditor from recovering on their deficiency claim against the debtor.

If you have a deficiency judgment against you or believe that one may be filed against you then contact Shmucher law, PL by calling 305.741.5553 or 239.299.7833 to schedule a free consultation with a local bankruptcy attorney.

Shmucher Law, PL, a bankruptcy law firm, represents debtors, creditors, and trustees in bankruptcy matters throughout Broward and Miami-Dade counties. Contact us today for a free consultation.