Deficiency Judgments


If there is one area of law that garners significant disagreement among litigants, courts, and lawyers alike, it is the award of a deficiency judgment following a mortgage foreclosure lawsuit. Deficiency judgments can act as personal money judgment against a borrower and are a real threat under Florida mortgage law as they have now become the rule rather than the exception. Apart from some legal or equitable principle to warrant a reduction of the deficiency amount, the Plaintiff is entitled to a deficiency judgment for the unpaid amount on the mortgage loan minus the fair market value of the property secured by the mortgage. However, it is important to know that a deficiency judgment may only be obtained against a party who is personally served with process and who is liable for debt; typically this is the person who signed the promissory note or personal guaranty. Florida statutes allow Plaintiffs for two ways in which to obtain such a judgment. First, a Plaintiff may file a motion for a deficiency judgment following the foreclosure lawsuit. This method essentially allows for the foreclosure lawsuit to continue without requiring the Plaintiff to re-establish jurisdiction over the borrower. Second, a Plaintiff may file a new and separate lawsuit against the borrower for a deficiency judgment. This second statutory method is more complex and requires the Plaintiff to serve the borrower with a new summons and complaint in order to obtain personal jurisdiction over him or her.

Why Choose to Fight?

At a final hearing for the deficiency judgment, a Defendant can raise defenses and present evidence in opposition to the issuance of a deficiency judgment. Depending on your situation, you may have one more of the following defenses to a deficiency lawsuit that may give you valuable leverage in settlement negotiations or prevent a Plaintiff from obtaining a deficiency judgment altogether. Anyone facing a deficiency judgment should consider the following defenses:

  • Various Equitable Considerations. The court will consider any equitable consideration. For example: If a mortgage loan was sold or transferred by the mortgagee to a third party for nominal value (in some cases just pennies on the dollar), it would be inequitable for the third party thereafter to obtain a deficiency judgment against the borrower that amounts to a windfall and the third party being unjustly enriched.
  • Lack of Standing. Often times the mortgage loan is sold to a third party who lacks the proper documentation that might otherwise entitle it to pursue the deficiency judgment.
  • Estoppel. A Plaintiff may be estopped by his or her own acts from seeking a deficiency judgment, such as where it fails to comply with the borrower’s request that it foreclose the mortgage upon maturity on the basis that the property’s value is equal to or greater than the mortgagee balance and that the property may depreciate in value in the future or where the Plaintiff has agreed that it will waive its right to seek the deficiency judgment.
  • Dispute over Fair Market Value of Property. It may be advisable to take a deficiency case to trial where it is unclear that the debt secured by the lien is more than the fair market value of that property. Every single piece of residential and commercial property is unique by its very nature and can be difficult to value at times. Therefore, employing an expert to testify on your behalf as to what the fair market value of the property was at the time of the judicial sale may be an effective strategy. Moreover, the court must consider an expert’s testimony as to the fair market value of the property in addition to any other evidence presented by the Defendant and although it has broad authority whether to agree with or disagree with the expert testimony, it cannot arbitrarily rule the issue and instead must have some reasonable basis in the evidence when entering a ruling as to the property’s value.
  • Failure to Meet Burden of Proof. The Plaintiff must be prepared meet its burden of proof at trial. The Plaintiff has the initial burden of proof to show that the fair market value of the foreclosed property foreclosed was less than the total amount owed in the Final Judgment, but it is presumed that the sale price at the foreclosure auction is equal to the fair market value of the property.
  • Dissuading the Plaintiff with Meritorious Litigation: Some Plaintiffs can be dissuaded from pursuing deficiency claims that simply are not economically advantageous. If a Plaintiff knows that it has to spend its money and time fighting a tenacious Defendant in court, participating in written discovery and engaging in protracted litigation, it may choose to settle or abandon its claim for a deficiency altogether. Therefore, when economically viable, a Defendant should do all it can to mount a strong offense in an effort to turn the tables.

A Final Word

Deficiency judgments put a borrower at serious risk of having his or her assets seized or having to declare bankruptcy. Because the awarding of the deficiency judgment is strictly within the court’s sound discretion, a borrower should almost always defense the case with vigor. Anyone who has been sued for a deficiency judgment should seek out a competent attorney well versed in this area of law and who is skilled in protecting those at risk for such judgments. Contact a Miami business lawyer today if you or someone you know is facing a deficiency money judgment in order to benefit from the aggressive legal representation and peace of mind you deserve.

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