Deficiency Judgment
Definition:
A deficiency judgment is a court order requiring a borrower to pay the remaining balance owed on a loan after the collateral securing the loan, such as real estate, has been sold in foreclosure and the sale proceeds do not cover the full debt. It allows lenders to recover the unpaid portion directly from the borrower. Deficiency judgments are common in mortgage and foreclosure cases where the property’s value is less than the loan amount.
Deficiency Judgment Information
A deficiency judgment arises when the proceeds from the sale of a foreclosed property fail to satisfy the borrower’s total debt. After foreclosure, the lender may seek a judgment for the difference between the loan balance and the sale price. This judgment converts the unpaid balance into a personal liability, allowing the lender to pursue collection through wage garnishment, bank levies, or liens on other assets. Deficiency judgments encourage borrowers to meet their obligations and help lenders recover losses. However, they are subject to strict procedural and legal requirements to ensure fairness and prevent excessive recovery.
Florida Legal Definition
Under Florida law, a deficiency judgment is governed by Section 702.06, Florida Statutes. After a foreclosure sale, a lender may request a deficiency judgment for the difference between the judgment amount and the property’s fair market value at the time of sale. Florida courts have discretion to grant or deny such judgments based on the circumstances of the case. The borrower may present evidence showing that the property’s fair value was higher than the sale price to reduce or eliminate the deficiency. Florida law also limits deficiency judgments in certain residential cases, especially where the mortgage debt was discharged in bankruptcy or protected by federal regulations.
How It’s Used in Practice
In practice, deficiency judgments are pursued by lenders after foreclosure when the sale does not fully satisfy the loan balance. Lenders file a motion in court requesting a deficiency judgment, and the judge evaluates the fair market value of the property compared to the remaining debt. Borrowers may contest the motion by presenting appraisals or other evidence to minimize the deficiency amount. Attorneys representing both sides often negotiate settlements or repayment agreements to avoid extended litigation. For borrowers, understanding deficiency judgment exposure is crucial when facing foreclosure or short sale situations.
Key Takeaways
- A deficiency judgment is a court order requiring a borrower to pay the remaining debt after a foreclosure sale.
- It represents the difference between the loan balance and the property’s fair market value at the time of sale.
- In Florida, deficiency judgments are governed by Section 702.06, Florida Statutes.
- Courts have discretion to grant, deny, or reduce deficiency judgments based on fairness and evidence presented.
- Borrowers can defend against deficiency claims by proving the property’s fair value was higher than the sale price.
Disclaimer: The information and opinions provided are for general educational, informational or entertainment purposes only and should not be construed as legal advice or a substitute for consultation with a qualified attorney. Any information that you read does not create an attorney–client relationship with Barnes Walker, Goethe, Perron & Shea, PLLC, or any of its attorneys. Because laws, regulations, and court interpretations may change over time, the definitions and explanations provided here may not reflect the most current legal standards. The application of law varies depending on your particular facts and jurisdiction. For advice regarding your specific situation, please contact one of our Florida attorneys for personalized guidance.
Visit our legal department pages:
Real Estate Attorneys
Business Attorneys
Litigation Attorneys
Estate Planning Attorneys
Inheritance Attorney
Probate Attorney
Probate & Trusts
Trust • Experience • Results
Ready to Get Started?
Get started with Barnes Walker today.
