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

Earlier this week I wrote about lenders taking the next step after a foreclosure.  Foreclosures happen from borrowers that "walk away" from their upside down valued properties, whether because of job loss, other expenses more important than the mortgage payment, or just a strategic default.  You can find the other article at MOTION FOR DEFICIENCY JUDGMENT - FORECLOSURE CONSEQUENCES.

An alarming event occured after I wrote that article.  In the past, there has been a pretty heated argument about whether the mortgage lenders are going to move on their ability to pursue deficiency judgments in foreclosure actions.  Many people say that it won't happen.  I even gave a seminar on foreclosures with a Florida judge that the judge said that she did not seen any deficiency judgment requests.

In the earlier article I showed a Motion for Deficiency Judgment from First Bank.  First Bank is big in Colorado and was a national lender, but it is not as big as the lender that filed the latest deficiency judgment that came into my office - Wells Fargo.

Now some explanation - Wells Fargo is not the owner of the note in this most recent deficiency judgment case - it is FANNIE MAE.

Fannie Mae released news late last month that it would take certain action on borrowers that walked from their properties in strategic defaults, one of the actions being they would blacklist the borrower for future loans for 7 years.  Filing for a deficiency judgment is the next action it will take.  Its announcement on June 23rd said, "Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments".

This announcement makes the call that many have been making to distressed homeowners only more important - DON'T PUT YOUR HEAD IN THE SAND THINKING THIS WILL ALL PASS TOMORROW - BECOME INVOLVED IN A SOLUTION TO YOUR PROBLEM -

Distressed borrowers should call their lender - or better yet - speak to a knowledgeable real estate attorney that looks for solutions (if the real estate or other attorney is all about keeping you in your house by dragging out the foreclosure, you are not speaking to an attorney looking to find a solution for you!

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 begin_of_the_skype_highlighting              561 689 6660      end_of_the_skype_highlighting - 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!  New Website

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Don DeHanas

Hi Richard,  Thanks for the timely artical.  I recently listed a home for short sale, and before receiving a contract, the seller was told by a Bankruptcy Attorney to just walk away and file for bankruptcy.  How does this play into deficiency judgements?  While I know very little about filing for bankruptcy, I assume there must be a proven hardship, right?  Is this a good course of action as opposed to a short sale?

Jul 05, 2010 03:50 AM #47
Denise Wilson
RE/MAX Ability Plus - Indianapolis, IN

Hi Richard,  I am wondering... what about the The Mortgage Forgiveness Debt Relief Act of 2007?  I have read about the protection this gives homeowners experiencing a foreclosure or a short sale through 2011.  How can Fannie Mae begin deficiency judgements while this is in place? I would appreciate an attorney's opinion.  Thank you! 

Jul 05, 2010 04:06 AM #48
Leila Duenas

Thanks for the update.

Jul 05, 2010 05:08 AM #49

I feel like have been under a rock.  I am a Realtor, in foreclosure myself, my lender's loan officer told me to walk away, "Everyone is doing it, there is no problem..."  I decided to not do that.  Thank God!

I applied for a re-fi, never heard from them once I submitted debt information, assets (or lack of), etc.   Just got the letter of Foreclosure notification from the Lawyers representing my Lender.  The attorney I had been speaking to on the phone, getting advice on how to reply to the lawyers, possible attorney for foreclosure, short sale, or whatever decided to take the Summer off!  

He referred me to an unknown attorney, someone who I had not ever heard of, he is located in the High Rent area and I don't have money for an attorney muchless an expensive one.  I will be 65, I am on SS, food stamps, and now in a dilemma, I have no where to go, no family to move in with and no resources.   I spent all my resources on mtg payments till it was gone.  I had hoped that the "Market would Turn Around" like they kept saying it would for the last three years.  I am applying for a regular job, but the area I live in is depressed, unemployment is over 10%, Commercial properties are vacant, there are tons of homes on the market, FSBO's, it is not a good situation.

Any good, useful advice would be appreciated.  No lectures, or cutting remarks please.  I already have plenty of pain in other areas of my life, I will not get into that here.

Thank you.

Jul 05, 2010 05:30 AM #50
David Monroe
Keller Williams Realty - Kirkland, WA
Short Sale Real Estate Agent

So how about the homeowner who was transferred across the country for their job and could not afford a rent payment at their new location in addition to their mortgage payment at their old house?  Are they going to be considered "strategic defaulters" by Fannie Mae?  They'll pull the borrower's credit and see that they only stopped making their mortgage payment, but stayed current on their other debt.

Or how about the borrower who lost their job and can no longer make their $3000/mo mortgage payment, but they could afford to pay $1200/mo in rent if they had to move, and they're still able to pay their two $50/month credit card payments?  Are they supposed to damage their credit even more and get the credit card companies chasing after them in order for it not to be considered a strategic default by Fannie Mae?

Fannie Mae's method of determining strategic default is flawed.  You can't just look at a person's credit report to determine if they strategically defaulted.

Jul 05, 2010 06:29 AM #51
Jason Brothers,,id=179414,00.html


With loss severities of foreclosures growing rapidly over short sales, we should continue to see servicers selling pre-foreclosure non-performing loans in lieu of executing the foreclosure.  This allows the new owner of the loan to negotiate a principal reduction while still retaining a nice yield.  Essentially short selling the home right back to the existing owner.  Whole loan trading activity has been picking up rapidly over the past 18 months preventing thousands of foreclosures.  This process would prevent deficiency judgments, but would still result in lower loss severities for the servicer.


Jul 05, 2010 07:18 AM #52
Karen Mathers - REALTOR®
Keller Williams Vero Beach - Vero Beach, FL
When it Matters, Choose Mathers! 772-532-3221

Richard, Great post once again. I talk to so many people that tried to work something out with their lender, but they ran into so many road blocks and miss-information they just gave up.  Fannie Mae should be threatening their banks that service their loans before they go after the homeowners. 

Jul 05, 2010 07:46 AM #53

In Arizona we are a non-recourse state but I wonder as time goes by, if the banks will start to review all short sales and strategic defaults.  Most approval letters mention that the bank does NOT waive the right to pursue deficiencies.  What is to stop them?

Jul 05, 2010 05:57 PM #54
Ed Borne
Transitions Realty - Los Angeles, CA

elb The best way to avoid this boomerang on your client, in my humble opinion, is DUE DILIGENCE.  From what I have studied and read from the best sources, like CAR/NAR, and this attorney, there are some steps that have to be followed in order to make a case against a deficiency judgment.  While we may be safe here in California from good faith "defaults", persons acting under the "strategic default" scenario could have a problem, even with a bankruptcy court of it is determined they acted in bad faith.

Jul 05, 2010 08:36 PM #55
Michael Collins
*ROCK REALTY|Broker|Realtor|Real Estate|WI Short Sale Agent* - Janesville, WI
CDPE, SFR , Wisconsin Short Sale Specialist Realto

Richard, how could this not be a re-blog.  Thanks so much for this great post!

Jul 23, 2010 03:04 AM #56
Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR
BROKER of Green Realty Properties® - 954-667-7253 - Davie, FL
Top Listing Broker

Hello Richard, :D

Thank you so much for writing this... hiding under the covers does make the problem go away.. it makes it worse.

Jul 23, 2010 03:30 AM #57

Be careful here!

Whether its a homeowner who tried everything to save their home, but at the end had to "walk away",

or a so-called "strategic default" or a "business decision" to just walk away, ....banks, lenders, and as we just read, even Fannie Mae (yikes!), may seek deficiency judgments against foreclosed loans.

My point?

Why make a distinction between the homeowner who just walked away and the "business decision" or that decision to make a so-called "strategic default"?

A deficiency judgment will be enforceable in many states for 20 years, so even that "poor homeowner who had to just walk away", may obtain some assets over a 20 year period, that can be "grabbed via a deficiency judgment" many, many years ..."down the road".

So these lenders, wall street investers, banks, even Fannie Mae, may decide to have their attorneys "plunk down" a few hundred dollars, and start a lawsuit for a defeciancy judgment,

...and yes, it might even be against that poor homeowner who just had to walk away because they had no money.

No money now, but what about 10, 15 years from now?

Aug 06, 2010 10:39 PM #58
Marsha Montoya Mayer
Paradise Properties of Florida, Inc. - Palm Beach, FL


For how many years is a deficiency judgment enforceable in Florida?

Dec 06, 2010 01:50 AM #59
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Marsha - long time !!!!!!!!!!!!!! (remember 845 Newark?)

once obtained, the judgment is enforceable for 20 years.

Dec 06, 2010 02:17 AM #60
Steve Vondran

Fannie and Freddie - what a piece of work.  The wheels are coming off the financial system.  Main street cannot shoulder the burdens of this wall street greed-gone-wrong forever.

May 18, 2011 04:48 AM #61

I was a homeowner who was wrongfully foreclosed, so let me say first hand that not all borrowers are strategic defaulters. My husband and I bought our first home when we were 19 and have owned 2 homes. The home that was foreclosed on was purchased in 07 with intentions of spending many years if not the extent of our lives in that home.

In August 2010 he got a new job 600 miles away to which we began to contact the mortgage co and ask what our options were considering we could not possibly pay for a lease and the mortgage at once. We put the house on the market in August and waited. We were told that we had no options until we were in default...WHAT, that makes no sense whatsoever. I made my last house payment before I couldn't anymore in October and by December they were calling me at least 2 times a day. As you all know, being Real Estate agents, the market is not so great around the holidays, so it just sat. Mid January we got an offer that would be a short sale to which we applied and got an extension on the foreclosure date for another month. I stayed on the phone everyday maybe twice a day to make sure we had all proper documents needed for this to happen. Everything was going smoothly ( as it possibly could dealing with a bank) and by the end of the month, 4 DAYS AFTER the foreclosure date, we were notified by an automated email that we had been foreclosed...

No one at the bank seemed to know what happened and they would not talk about it because they said it was confidential.

The house was worth 136,000; we asked 129,000; we owed 114,000; the offer was for 120,000 and they would not accept the offer, but rather foreclosed without notification.

Now the house has been taken and on the market as a Fannie Mae home with an original asking price of 119,000; and has now been dropped down to 114,000.                   That's called fraud folks

Now guess who is knocking at my door, Fannie mae wanting their money.

We are not all strategic defaulters and should not be put in that category just because the bank took advantage of our situation.

Jun 16, 2011 05:02 PM #62
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Prime example Brooke!

Your hardship was distance to job. A recognized hardship.

The "you have got to be late" scenario should not have applied to your situation - someone at the servicer dropped the ball (no surprise there!).

The deficiency they want - First, it would seem that the sale could be or could have been set aside based on fraud. Second, the lender should not be entitled to a deficiency based on the fraud (even if not set aside) or the failure to mitigate when given the opportunity, or the fact that there is reasonable question as to value at the time of the foreclosure sale that there was a deficiency in value - all a combination of all three.  Next time they call you - tell them to sue you or leave you alone - or you will sue them, and ask for the callers name, address and phone number.  Also consider getting a recording device that announces per your state's law that the phone call is being recorded (sometimes just an inserted periodic beep is sufficient - but an announcement is better. Most collection agencies will hang up and never call back.

You have indeed been dealt with unjustly.  Speak to a local knowledgable attorney and see if there is anything you can do regarding how you have been damaged.

Jun 16, 2011 10:49 PM #63


Thank you for the good information. I told Fannie Mae that I was going to dipute the amount of $19,360 that they are trying to come after me for, considering the bank did an unjustice to me and my family.

My husband and I have had great credit until the foreclosure, and now we feel like they can just come get us because we have done nothing wrong.

Bank of America has a name that we should be able to trust. They are more worried about getting new customers than keeping the ones they already have, and treating them so unjustly that this will surely be the reason for their demise in the future.


Jun 18, 2011 11:33 AM #64
harley race

To Bruce who posited the question:  "If the bank has to take the loss on a property's declining value because the owner does not want to then shouldn't the lending bank also get the appreciation on properties they lend against that go up in value?"  Throughout history, until now, that's exactly what happened.  People would put down 20% on a home, pay on it for a number of years, and then run into financial straits and be foreclosed.  The loan was for 80% of the original value, the value had since gone up (to 120%, 130% of the original value, whatever), the bank then sells it for a huge profit.  Soooo, if the house goes up in value and the owners are foreclosed the banks win, if it goes down in value and the owners are foreclosed they have to pay the bank the difference.  The banks never lose?  If the house goes up in value and the owners are foreclosed do the banks send them a check for the difference? 

Sep 10, 2011 04:34 AM #65
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney


If the value is more than the mortgage, and at the auction the home is sold for more than the debt, then the amount over the judgment is "surplus" and it belongs to the other lienors, judgment holders and if anything left over, the foreclosed owner. 

If the house is sold to the bank because no one bid above the judgment amount, then if the value goes up and the house sells for more, the bank profits from the increase in value.

Sep 10, 2011 04:55 AM #66
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