A deficiency judgment is entered against a borrower when proceeds from a short sale, a deed in lieu of foreclosure sale or a foreclosure proceeding on their property are insufficient to pay the entire balance of the original unsecured debt. These judgments are enforced by the courts and how they can affect you varies by state.
Borrowers do not have control over a deficiency judgment as their lender has the legal right to seek full restitution on their debt. Whether or not a foreclosure transaction results in a deficiency judgment is entirely at the lender’s discretion. The amount of a deficiency judgment is generally determined after the original loan principal, interest accrued and attorney fees are deducted from the amount paid by the lender at the time of foreclosure sale.
Though they can opt to cancel the debt and forfeit collecting the deficiency, lenders are more likely to seek repayment from borrowers with greater assets. As a result, people entering foreclosure proceedings often file bankruptcy to avoid having a judgment entered against them or to discharge the debt in its entirety. Therefore, provided that you are an adequate candidate, filing Chapter 7 bankruptcy to avoid a deficiency judgment is completely legal under Florida state law.
When considering bankruptcy in the state of Florida bear in mind that the lender has only a year from the foreclosure sale date to enter a deficiency claim with the courts under the foreclosure proceedings, but up to five years if it files a separate suit to collect the deficiency under the terms outlined in the original promissory note.
In the event that your lender has already foreclosed on the property, a short sale (usually the best way to avoid the pitfalls of foreclosure and the ensuing credit disaster) is no longer a viable option; filing bankruptcy is possibly your best bet against further losses credit or damage.
While the process can be complicated, help is available. Stephen K. Hachey, a Florida real estate attorney, that can help you navigate this process and make the most of a difficult situation. Contact him at 813-549-0096.