Deficiency Judgment Defense

Deficiency Judgment Defense Information

Deficiency judgment defenses are critical for borrowers facing foreclosure because: the deficiency can be substantial (the difference between the mortgage balance and the property's fair market value), the deficiency judgment is enforceable as a personal judgment (the lender can garnish wages, seize bank accounts, and lien other property), and the judgment accrues interest (increasing the total amount owed over time). Common defenses include: fair market value challenge (arguing the property was worth more than the lender claims, reducing the deficiency), statute of limitations (the lender must file for deficiency within the applicable period), procedural defects (challenging whether the foreclosure was properly conducted), offset claims (the borrower may have claims against the lender that reduce the deficiency), and exempt asset protection (identifying assets that are protected from collection).

Florida Legal Definition

Deficiency judgment law in Florida is governed by Florida Statutes §702.06. Under §702.06, the deficiency is calculated as: the judgment amount minus the fair market value of the property at the time of the foreclosure sale (not the actual sale price). This fair market value standard is a critical defense: if the property's fair market value exceeds the sale price (which commonly occurs at foreclosure sales, where properties typically sell below market value), the deficiency is reduced. Under §95.11(2)(b), the statute of limitations for a deficiency judgment action is 5 years from the date of the foreclosure sale. Florida's homestead exemption (Article X, Section 4) protects the borrower's primary residence from the deficiency judgment. Under §222.11, the head of a family's wages are exempt up to $750 per week from garnishment.

How It's Used in Practice

In practice, attorneys defend against deficiency judgments by: challenging the lender's fair market value determination (retaining an appraiser to provide a higher value, reducing the deficiency), raising the statute of limitations defense (if the lender filed more than 5 years after the sale), identifying procedural defects in the foreclosure (improper notice, defective affidavits, or chain of title issues), asserting offset claims (claims the borrower has against the lender, such as servicing violations or breach of the duty of good faith), protecting exempt assets (homestead exemption, wages, retirement accounts, and other exempt property), and negotiating a settlement (offering a reduced lump sum to satisfy the deficiency). The attorney evaluates: the borrower's total exposure, the borrower's ability to pay, the lender's likelihood of collecting, and the cost-benefit of settlement versus litigation.

Key Takeaways

• Deficiency: mortgage balance minus fair market value after foreclosure.
• Florida §702.06: FMV standard (not sale price) for calculating deficiency.
• 5-year statute of limitations from foreclosure sale.
• Homestead exempt from deficiency judgment collection.
• Defenses: FMV challenge, SOL, procedural defects, and asset exemptions.

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Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC