Earlier this week, our Boca Raton real estate blog began to discuss deficiency judgments and how homeowners can face serious financial consequences if they choose to let their homes go into foreclosure in Florida. In Florida, a lender has up to five years to file a deficiency judgment against a borrower if at the time of foreclosure, the borrower owed more on their mortgage than what the home was appraised at. After a judge approves the judgment, lenders can attempt to collect the debt for 20 years.

One Florida man is being sued by his former lender for $700,000. The homeowner was in the process of building a home with a $1 million loan when the property went into foreclosure. At the time of the foreclosure, the home appraised at $400,000. Deficiency judgments are still rare in Florida, but some experts believe that the rise in foreclosure filings over the past few years will encourage lenders to put more effort into recouping their losses. One lender commented, “Prior to 2008, we never had a deficiency on a foreclosure. It’s really being driven by what’s happened to real estate values.”

Deficiency judgments are not something that borrowers can easily avoid. In Florida, lenders have the legal right to request a borrower’s pay stubs, bank statements and tax returns after a judgment is granted, and lenders can collect from borrowers who have moved to another state. If a debtor chooses not to pay the deficiency judgment, the individual could face jail time and creditors can garnish wages. Debtors could also lose other possessions such as jewelry, boats or rental property. If a borrower’s income is below a certain amount, then the individual’s wages are exempt. Primary homes, 401(k)s and IRAs are also exempt.

Earlier this week we discussed how a short sale may be an alternative to foreclosure and hiring a foreclosure lawyer in south Florida. However, many Florida residents have already lost their homes to foreclosure and could be at risk of having to pay deficiency judgments. Deficiency judgments can be challenged, but only if a borrower responds quickly to the lender’s motion to file a judgment. Individuals who are concerned about a deficiency judgment may want to consult a real estate attorney in order to understand and protect their rights.

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