MOTION FOR DEFICIENCY JUDGMENT - FORECLOSURE CONSEQUENCES

By
Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY

Today I received a call from one of my blog readers asking me for help with a pleading he received months ago, that is now being scheduled for a hearing in August.  This is a prime example of why Strategic Defaults or just walking away from a property can be so dangerous.  The pleading is a Motion for Deficiency Judgment from a foreclosure judgment and sale that occurred but was (like most other foreclosure sales) acquired by the lender for a nominal bid.  I and many others have been writing about this forgotten liability of borrowers. 

Now here is an example of just what we said would happen, happening:

Motion for Deficiency page 1

Motion for Deficiency page 2

How the deficiency judgment hearing proof is presented to the court is discussed in my previous article on Foreclosure Deficiency Judgments and my original Back to Basics article.  The essence is that a deficiency judgment to be issued must go through a hearing where the lender submits proof (evidence) of the value of the property. The borrower has the right to refute the values. Getting to the number works like this:

To figure get the balance of the monies the bank must go back to court to ask the court to award it a "Deficiency Judgment".  The amount is what is in question and the amount is measured using various rules.  Let's assume the bank bid $100.  The court is not going to say that the house was worth $100 and $324,900 is still owed.  For our assumption we will say that the property is worth $200,000 and the foreclosure judgment is for $325,000.  That means the court will ask for an appraisal of the property as of the day of the foreclosure sale and the judge will likely give it that value.  So it will be the appraisal value less the judgment amount which will equal the Deficiency Judgment.  If the appraisal is $250,000, the Deficiency Judgment would be $75,000.   Now if there was real bidding at the foreclosure sale the judge could consider that bidding and instead adopt the selling price under the competitive bidding process that occurred at the foreclosure sale.  Then the Deficiency Judgment would be the difference from the foreclosure judgment and the winning bid amount. If the competitive bid was $240,000, then the Deficiency Judgment would be $85,000.

Back to the real life person with his August hearing - we suggested that before he retain us to negotiate with the lender on the deficiency amount and terms as a possible settlement without going to court, he try it himself.  We also suggested he speak with a bankruptcy attorney as there may be some planning opportunities available for him before the judgment is entered - if the negotiations don't work.

Remember, a money judgment - that is what a Deficiency Judgment is - gives the judgment holder broad powers to collect the money, including garnishment and attachment of assets (like bank accounts).  Fraudulent Transfer Acts in the various states will block or take back transfers made to "hide" money from creditors.  See the article at CNN Money.

Copyright 2010 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com  New Website www.Florida-Counsel.com

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Comments (13)

Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Richard,

This is a slow reading, but it is something that is needed, so I did it twice. Pretty much the calculation is the way I thought. I was wrong on that I thought it is not appraisal, but the actual amount of sale, and it always bothered me seeing what they sell for, but appraised value makes more sense.

Thanks

Jun 30, 2010 10:49 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Very interesting Richard. I'm still waiting on an article that specifically addresses deficiency judgments and short sales.

A deficiency judgement is certainly not a good thing and will hand over your head for many years.

Jun 30, 2010 11:16 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Also interesting that they are asking for and probably entitled to the monies paid for delinquent taxes. I would guesss this would be true for HOA fees and the cost of the foreclosure?

Jun 30, 2010 11:18 AM
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Richard,

This is what happens when the consumers and their advisers are educated by TV sound bytes!

It's hard to be sympathetic when the problem is deliberate ignorance! Still their families don't deserve this pain nor do their neighbors.

Bill

Jun 30, 2010 01:52 PM
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Great information Richard.  I'm re-blogging this one.  Too many troubled home owners think they can walk away and it has no possible consequences to them.

Jul 01, 2010 01:53 AM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Richard - To see this spelled out so clearly will help a lot of people make decisions.  Thank you!

Jul 01, 2010 11:12 AM
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Broker Bryant - how soon you forget - I did exactly that article in 2008 - but for you I will update it and republish it this weekend..............

Jul 01, 2010 04:23 PM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

That would be an awesome thing. Thanks Richard

Jul 02, 2010 10:14 AM
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Richard, thanks for the explanation about the process to arrive at the Deficiency Judgment amount and the other information in this post. Excellent.

Jul 03, 2010 04:42 PM
Thomas Johnson
RE/MAX TOP - Houston, TX
SRES, Green

What liability will all these "short sale specialists" incur when the deficiency judgemnts start rolling out of closed short sales?

Jul 05, 2010 05:32 AM
Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR
BROKER of Green Realty Properties® - 954-667-7253 - Davie, FL
Top Listing Broker

Richard,

I am curious to know what happened to this case... Could you post an update? Thank you! Patty. :D

Sep 19, 2010 01:12 PM
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Patty -

The result is always the same - the bank gets the deficiency judgment in the amount of the final judgment less the value of the property at the time of the foreclosure sale.  The only variable each time is a determination of the value of the real estate at the time of the foreclosure sale.  The court is given no leeway to deal with "equity" or cut anyone a break.  Once the valuation determination is made, it is simple math. 

Sep 19, 2010 02:10 PM
Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR
BROKER of Green Realty Properties® - 954-667-7253 - Davie, FL
Top Listing Broker

Richard, Thank you so much for the update/reply. :)

Jan 12, 2011 06:37 AM