Bankruptcy the only Remedy against Deficiency Judgments


There is a little-known danger most homeowners are not aware of. It’s the danger of deficiency judgments. A deficiency judgment is a decision by a judge to award a creditor the right to claim the shortfall between what was owed and the amount that was appraised on a property. For instance, if your mortgage is outstanding by $300,000 but the appraised value of your house at the time of foreclosure is only $180,000 your lender can apply to the court for permission to claim the shortfall (called a ‘deficiency’) of $120,000 plus interests from you. This is what is known as a deficiency judgment.

What a deficiency judgment means is that your worries are not over the moment you hand over the keys to your foreclosed house to your bank. In addition, a deficiency judgment can be brought against you not only by your primary mortgage holder but by the secondary mortgage holder, the mortgage insurer or even government entities like Fanny Mae and Freddie Mac. Also, bear in mind that in Florida the lenders do not have to file for deficiency judgment straight after a foreclosure. The court grants them up to five years to do so and once the deficiency judgment is granted, the lender has up to twenty years to collect the debt. Even if you move to another state, you are still liable. Imagine, even if you are short of cash now, your lender can still claim from you years from now after you have become more financially stable.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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