The lender will want full amount paid back, if you can't pay, they may take further legal action against you. Legal action to collect the remaining amount is called a deficiency judgment.
If The Deficiency Judgment is Successful
If your lender successfully is awarded a deficiency judgment against you, you are personally liable for the amount of the judgment. You are legally required to satisfy the deficiency judgment, and the lender can go after you if you don't. They may be able to garnish your wages, levy bank accounts, or take personal items (not necessarily your home, car, or other essential items).
Retirement accounts are generally not at risk in a deficiency judgment, but you should check with a local attorney if you are at risk.
If your deficiency occurred in Florida, in 2013 some important changes were made:
On June 7, 2013, Florida Governor Rick Scott signed into law House Bill 87, now known as Chapter 2013-137,1 which provides for substantial changes in mortgage foreclosures filed in Florida. Although foreclosure defense attorneys are of the opinion that the bill "favors banks,"2 the bill contains "pro-borrower" provisions, as it shortens the time period to seek a deficiency judgment, and provides for more stringent standing requirements for lenders filing mortgage foreclosure complaints on or after July 1, 2013. Below are a few key points:
Foreclosure Complaints-Standing
The most substantial change for lenders is the creation of Florida Statutes § 702.015, which was created to speed up the foreclosure process, but in actuality, requires more paperwork for lenders. A lender who fails to comply with this statute may be subject to sanctions.3 The statute applies to a plaintiff filing a complaint, on or after July 1, 2013, seeking to foreclose upon residential real property (one to four family dwellings), and requires the following:4
Affirmative allegations that the plaintiff is the holder of the original note secured by the mortgage OR specific allegations of the factual basis by which the plaintiff is entitled to enforce the note.5
When a party, such as a loan servicer, has been delegated authority to file a mortgage foreclosure action on behalf of the note holder, the complaint must describe the authority and identify with specificity the document that grants the party to act on behalf of the note holder, such as a power of attorney.6
When the plaintiff possesses the original note, as a condition precedent to and contemporaneously with filing the complaint, the plaintiff must attach copies of the note and all allonges, and certify, under penalty of perjury, that it possesses the original note and provide specific details regarding its physical location and plaintiff's verification of same.7
When the plaintiff seeks to enforce a lost, destroyed or stolen note, it must execute an affidavit under penalty of perjury, and attach it to the complaint. The affidavit must include the following: (1) a chain of all endorsements, assignments or transfers of the note; (2) facts showing plaintiff is entitled to enforce the note; and (3) exhibits including copies of the note and allonges, audit reports showing physical receipt of the original note, or other evidence of acquisition, ownership and possession of the note. The plaintiff must also provide adequate protection as required under Florida Statutes § 673.3091(2) before final judgment.
Deficiency Judgments-Limitations Period and Amount Recoverable
The bill also reduces the statute of limitations period for a lender seeking a deficiency judgment on a note secured by a mortgage on residential property (one to four family dwellings), from five years to one year, for a deficiency action commencing on or after July 1, 2013, regardless of when the cause of action accrued.8 The bill also limits the amount recoverable, in the case of owner-occupied residential property, to the difference between the judgment amount (or with a short sale, the outstanding debt) and the fair market value of the property on the date of the sale.9
Irrevocability of Mortgage Foreclosure Judgments
The new bill also creates Florida Statutes § 702.036, which provides for the finality of mortgage foreclosure judgments. The statute provides that an action to set aside, invalidate or challenge the validity of a final judgment of foreclosure, or to establish or reestablish a lien or encumbrance of property, is limited to monetary damages if all of the following apply: (1) the party seeking relief from the final judgment of foreclosure was properly served in the foreclosure action; (2) the final judgment of foreclosure was entered as to the property; (3) all applicable appeals periods have run and appeals are resolved; and (4) the property has been acquired for value, by a person not affiliated with the foreclosing lender or foreclosed owner, at a time in which nolis pendens regarding the suit to set aside, invalidate or challenge the foreclosure appears in the official records.10
The statute also provides that after a mortgage foreclosure based upon the enforcement of a lost, destroyed or stolen note, a person not a party to the foreclosure, but who claims to be the person entitled to enforce the note, has no claim against the property after it is conveyed for valuable consideration to a person not affiliated with the foreclosing lender or foreclosed owner. The rightful note enforcer may still recover adequate protection given pursuant to Florida Statutes.
Orders to Show Cause
The bill makes several revisions to the show cause process in Florida Statutes § 702.10, applicable to pending causes of action, including allowing a condominium, homeowners' or cooperative association with a lien on unpaid property assessments (or those associations that may file a lien against the property subject to the foreclosure), to request an order to show cause for the entry of a final judgment of foreclosure. Previously only the lender had this ability. The summary judgment standard is used, and at the hearing, defendants will need to claim a specific, allowable defense to prevent the foreclosure. The bill exempts owner-occupied residences from an order to show cause why the court should not enter an order requiring the borrower to make payments during the pendency of the foreclosure or enter an order to vacate the premises.
Adequate Protection for Lost, Destroyed, or Stolen Notes
The bill creates a new statute, Florida Statutes § 702.11, applicable to pending causes of action, and provides that a court may find the following as constituting adequate protection for lost, destroyed or stolen notes:11 (1) a written indemnification agreement by a person reasonably believed sufficiently solvent; (2) surety bond; (3) letter of credit issued by a financial institution; (4) deposit of cash collateral with the clerk of court; or (5) other security that the court deems appropriate under the circumstances. The bill also outlines the liability of a person who wrongly claims to be the holder of a note or entitled to enforce a lost, stolen or destroyed note, and the remedies the actual note holder has against that person.
Magistrate Jurisdiction
Separately, and additionally, the Supreme Court of Florida has recently amended Florida Rule of Civil Procedure 1.490, to help alleviate the residential mortgage foreclosure case backlog. The amendments expand the use of magistrates in residential mortgage foreclosure cases by authorizing referral of those cases to magistrates now based upon implied consent of the parties, while providing an opportunity for the parties to object. Although this amendment was created to alleviate the backlog, it may have the opposite effect, since parties may still file exceptions to the magistrate's report and recommendation, and set same for hearing before a circuit court judge. Therefore, instead of a motion being heard on one occasion before a circuit court judge, two hearings may become common practice: one hearing before the magistrate, and another hearing before the circuit court judge on the exceptions to the magistrate's report.12
