If you go through a foreclosure in Florida, the foreclosure auction could result in a deficiency. (When the foreclosure sale price doesn't cover the balance of the borrower's mortgage debt, the difference between the total debt and the sale price is called a "deficiency.")
In most states, including Florida, if a foreclosure sale results in a deficiency, the lender may get a "deficiency judgment" (a personal judgment) against the borrower for the deficiency amount.
If you default on your mortgage loan, the lender can go through a specific legal process called "foreclosure" to sell your home to repay the outstanding debt. After the lender fulfills all of the legal requirements for foreclosure, the final step in a judicial or nonjudicial foreclosure is the foreclosure sale, where the home is sold to a new owner at a public auction.
The foreclosing lender submits the first bid at the sale, which is a "credit bid." With a credit bid, the lender gets a credit in the amount of the borrower's debt. The lender can bid up to the total amount of the debt, including foreclosure fees and costs, or it might bid less. Most of the time, the lender makes the highest bid at the sale and becomes the new owner of the property because no one else bids. If the lender buys the property at the sale and gets title to the home, the property is considered "real estate owned" (REO).
Lenders regularly bid less than the total amount of a borrower's mortgage debt at foreclosure sales.
When the lender gains ownership of a property through the foreclosure process, and if state law allows it, the lender can seek a personal judgment against the borrower to recover the deficiency, if one exists. This kind of money judgment is called a "deficiency judgment." In some states, the lender may ask for a deficiency judgment as part of a judicial foreclosure process. In other states, the lender has to file a separate lawsuit against the borrower after the foreclosure to get a deficiency judgment.
But if the sale price is equal to, or more than, the mortgage debt amount, you're off the hook because no deficiency exists—even if the lender can't resell the property for the same amount after the foreclosure sale. In fact, if the sale results in excess proceeds, you might be entitled to that extra money following the foreclosure auction. But, if any junior liens were on the home, like a second mortgage or HELOC, or if a creditor recorded a judgment lien against the property, those parties get the funds to satisfy the amount they're owed. Then, any proceeds left over after paying off these liens belong to the foreclosed homeowner.
State law sometimes imposes limits on deficiency judgments. Some states restrict deficiency judgment amounts, such as by requiring that the borrower get credit for the home's fair market value if the foreclosure sale price is less. That is, the property's fair market value is substituted for the foreclosure sale price when calculating the deficiency amount.
Other states limit set time limits for how long lenders get to seek a deficiency judgment against a borrower, typically ranging from three months to one year after the foreclosure sale. (To find out the time limit in your state, talk to a foreclosure lawyer.) And various states require specific procedural requirements to get a deficiency judgment, while specific some don't allow deficiency judgments in certain circumstances, like after nonjudicial foreclosures.
Generally, once a lender gets a deficiency judgment, it may collect this amount (in the example above, $50,000) from the borrower using regular collection methods, like garnishing wages or levying a bank account.
Even if your lender gets a deficiency judgment, you can probably eliminate your liability for a deficiency judgment, like many other dischargeable debts, in a Chapter 7 or Chapter 13 bankruptcy.
Even if your lender has the right under state law to go after you for a deficiency judgment, it might decide not to do so—especially if you don't have many assets to satisfy the judgment. The lender might decide it isn't worth the expense and effort of getting a deficiency judgment.
Still, you should know whether your lender can potentially pursue you for a deficiency after a foreclosure. Also, even if the lender decides not to sue you for a deficiency judgment, it could later sell the debt to a debt buyer who might file a lawsuit against you for the deficiency later on.
Foreclosures in Florida are judicial, which means the lender must foreclose through the state court system. A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale.
In Florida, the lender may obtain a deficiency judgment as part of the foreclosure action if the borrower was personally served with the foreclosure complaint. The lender may also file a separate lawsuit against the borrower for a deficiency judgment unless the court denied one in the foreclosure action. (Fla. Stat. Ann. § 702.06).
The court has flexibility regarding the amount of the deficiency. (Fla. Stat. Ann. § 45.031(8), Fla. Stat. Ann. § 702.06). But the judgment generally can't exceed the difference between the judgment amount and the home's fair market value as of the sale date, particularly if the property is owner-occupied and residential. (Fla. Stat. Ann. § 702.06).
The statute of limitations for getting a deficiency judgment for residential properties with no more than four dwelling units is one year. The limitations period starts on the day after the clerk of court issues the certificate of title to the person or entity that bought the home at the foreclosure sale. (Fla. Stat. Ann. § 95.11).
Generally, when a senior lienholder forecloses, any junior liens—like second mortgages and HELOCs, among others—are also foreclosed, and those junior lienholders lose their security interest in the real estate. In this situation, junior lienholders are sometimes called "sold-out junior lienholders." But that doesn't mean that you don't still owe money to junior lienholders.
Suppose a junior lienholder, like a HELOC lender, is sold out in this manner, and the foreclosure sale proceeds weren't sufficient to pay what you owe to that junior lienholder. In that case, the junior lienholder could sue you personally on the loan's promissory note. So, if the equity in your home doesn't cover second and third mortgages, for example, you might face lawsuits from those lenders to collect the balance of those loans.
If you have questions about Florida's foreclosure process or want to learn about potential defenses to a foreclosure, such as a statute of limitations defense, and possibly fight the foreclosure in court, consider talking to a foreclosure attorney.
It's also a good idea to talk to a HUD-approved housing counselor if you want to learn about different loss mitigationoptions. You can use the Consumer Financial Protection Bureau's Find a Counselor tool to get a list of HUD-approved housing counseling agencies in your area. You can also call the Homeownership Preservation Foundation (HOPE) Hotline, which is open 24 hours a day, seven days a week, at 888-995-HOPE (4673).