When a lender forecloses on a property, the sale may not cover the full amount owed on the mortgage. In Florida, the lender can pursue a deficiency judgment to recover the remaining balance. If you face foreclosure, it helps to understand what a deficiency judgment means and how it might affect you.
How a deficiency judgment works
After a foreclosure sale, if the property sells for less than the outstanding mortgage balance, the lender can file a lawsuit for the difference. This amount is called a deficiency. For example, if you owe $300,000 but the home sells for $250,000, the lender may seek the $50,000 difference. In Florida, the lender must request the deficiency judgment within one year of the foreclosure sale.
Defenses against deficiency judgments
You have options to challenge or reduce a deficiency judgment. You can argue that the property’s fair market value was higher than the sale price, which can lower or erase the deficiency amount. Some borrowers also negotiate settlements or payment plans. In certain cases, filing for bankruptcy can discharge the deficiency debt, depending on the type of bankruptcy.
How deficiency judgments impact your finances
A deficiency judgment becomes a court order against you. It allows the lender to collect the debt through wage garnishment, bank account levies, or property liens. It also shows up on your credit report and can lower your score. This financial strain can make it harder to qualify for loans, rent homes, or secure low-interest rates in the future.
You can avoid deficiency judgments by negotiating a short sale with a waiver of deficiency, pursuing a deed in lieu of foreclosure, or working out a loan modification. Each of these options can help you minimize financial damage and move forward without a lingering debt hanging over you.
