Just as we pass through bands of a hurricane, the bands of the foreclosure storm are intensifying and changing even as thousands of Floridians have already lost their homes to foreclosure. Newer bands of deficiency judgments are overlapping with the mounting number of lawsuits, summary judgments and sales.
A deficiency judgment is what a bank will often seek when they sell the property and the proceeds aren’t enough to pay off the foreclosed loan (all lenders in this article will simply be referred to as “banks"). The bank will then pursue the former homeowner for the difference between what the home was sold for and what the borrower owed.
Unless there is a specific, binding agreement which prevents the bank from pursuing the homeowner for a deficiency judgment, the bank may very well do so. As noted in a recent Sun-Sentinel column by Beth Kassab, a new collection industry focusing on recouping deficiency judgment funds is emerging. Foreclosure attorney Matt Englett believes that in the coming years, banks will sell off these debts to collection companies who will aggressively pursue the judgment funds. Time is also on the banks’ side in pursuing a deficiency judgment, as they have five years to seek the judgment and twenty years to collect.
However, deficiency judgments are not a foregone conclusion. As with any other relief that a homeowners seeks in foreclosure, the two main approaches are to ask the bank, or ask the court. If the bank will agree, all the better. If the property is heading towards a foreclosure judgment and sale, the homeowner and bank can enter into a general release. General releases are often found in boilerplate form and used in many settlement proceedings. The release in any given case should of course be tailored to the specific facts and law of that case. The gist of a good release, from a homeowner’s perspective, is that the bank will be forever barred from any claims, lawsuits or complaints relating to the homeowner, subject property or loan, specifically including deficiency judgments. A general release will usually be mutual, meaning that both parties are permanently barred from any further action against each other.
A general release may be used as a quid pro quo for another agreement between the homeowner and the bank, such as a short sale, deed in lieu of foreclosure, or consent judgment. Mediations are now required in most Florida residential foreclosure actions, and the mediation may be a good time to have a general release executed as all parties will be present.