DEFICIENCY JUDGMENT BARRED AFTER ONE YEAR - DOES IT APPLY TO SHORT SALES?
Florida homeowners who lost their home to foreclosure or short sale could be escaping a deficiency judgment if the lender misses the statue of limitations. The new law, now in its second year, seems to have former Florida homeowners escaping deficiency risk where their lenders - especially 2nd mor
The Definition of Short SaleI last mentioned this new law at my article Deficiency Lawsuits In Florida Accelerate To Meet Deadline. The new law is complicated because of innuendo and gray areas of interpretation. However it seems abundantly clear that if a mortgage is foreclosed or if the home is returned to the lender though a deed in lieu of foreclosure (called typically a DIL), then from the date the certificate of title is issued by the clerk in a foreclosure sale, or the recording in the public record of a DIL deed in the event of deed in lieu of foreclosure, one year is all the lender has to pursue any reserved right to go after the borrower for any short fall in the amounts unpaid to the lender. This short fall is called the Deficiency, and the lender typically pursues a Deficiency Judgment with the court.
Gray Area of Application to Short Sales?Unclear however is how it affects short sales. Typically short sales of a first mortgage provide some sort of waiver of deficiency of the first mortgage. However this is not always the case. Further, second mortgages and that includes equity lines of credit (HELOCS for example) are often not waiving their unpaid balances in a short sale. Under the new law, there is dramatically missing any language that specifies short sales as being included in the new one-year limitation language. However there are strong hints in other statutes that were amended in the same Legislative Act that point to the intent of the Legislature to have included short sales in the one-year limitations rule for residential properties. The only specific reference to short sales is in 706.06: 702.06 Deficiency decree; common-law suit to recover deficiency.--In all suits for the foreclosure of mortgages heretofore or hereafter executed the entry of a deficiency decree for any portion of a deficiency, should one exist, shall be within the sound discretion of the court; however, in the case of an owner-occupied residential property, the amount of the deficiency may not exceed the difference between the judgment amount, or in the case of a short sale, the outstanding debt, and the fair market value of the property on the date of sale. For purposes of this section, there is a rebuttable presumption that a residential property for which a homestead exemption for taxation was granted according to the certified rolls of the latest assessment by the county property appraiser, before the filing of the foreclosure action, is an owner-occupied residential property. The complainant shall also have the right to sue at common law to recover such deficiency, unless the court in the foreclosure action has granted or denied a claim for a deficiency judgment.
Does This POint to Short Sales?However with all this pointing to short sales being included in the blanket of the 1 year statute of limitations, 95.11 (5)(h) is just plain missing that connection: (5)(h) An action to enforce a claim of a deficiency related to a note secured by a mortgage against a residential property that is a one-family to four-family dwelling unit. The limitations period shall commence on the day after the certificate is issued by the clerk of court or the day after the mortgagee accepts a deed in lieu of foreclosure. It is of no small consequence that all these changes to the various statutes came from one Act enacted by the Legislature. The Act is 2013-137. Therefore it stands to reason that one definition of "deficiency" would be standard throughout the Act. After all, in all cases the "deficiency" relates to a note secured at some point in time by a mortgage, as pointed out in 95.11(5)(h).
Common Sense or Rule of Law?So far there are no reported appellate case to provide guidance on this issue of whether a short sale deficiency can be brought to a lawsuit filed more than one year after the short sale transfer date. Most lenders with which we are familiar are playing it safe and trying to pursue actions before the one year post short sale occurs. But we are also seeing a fair number of loans - especially where there were multiple sales of the promissory note - end up without any claim being filed within that one year parameter. Time will tell -