Florida Appeals Court Nixes Bank's Foreclosure Deficiency Judgment; Amount To Be Based On Property Value On Sale Date, Not Six Months Later

The Florida Banking Law Blog reports:

• Most of you may know that, in Florida, the standard by which a deficiency is determined in a foreclosure case is the difference between the amount owed to the lender and the fair market value of the mortgage property as of the date of the foreclosure sale. This has been well established by case law over the years.
  
  In practice, the fair market value is typically established by presenting testimony from a real estate appraiser who is recognized by the court as an expert in property appraisal. Often, the lender has ordered the appraisal in connection with its evaluation of the property and before it takes the asset into ORE.
  
  In these instances, there are times when the appraisal report is dated as of a date other than that of the foreclosure sale date. What impact can this have on a subsequent motion for deficiency? A recent appellate decision by the Second District Court of Appeals addressed this question.
  
  In this case, decided in April of this year, the Court reviewed a $2.6 million dollar deficiency judgment entered by the trial court based in part on an appraisal dated some six months after the foreclosure sale date.
  
  It appears that the borrower’s trial counsel must have raised the issue that the value was not determined as of the foreclosure sale date. In response, the lender’s attorney offered only the argument that the values could not have changed much in the five month time from the foreclosure sale date to the appraisal date.
  
  The appellate court reversed the decision, finding that this was merely a conclusory statement that was not supported by the evidence. The case was remanded for further proceedings which means more cost and delay for that lender.(1)
  
  The lesson here is a basic one. You need to present evidence of fair value as of the date of the foreclosure sale or risk an unfavorable ruling, either at trial or on appeal. The best way is to make sure that the appraiser you are using as an expert has valued the property at the foreclosure sale date and that the resulting report reflects that.(2)

Source: The Importance of Having the Correct Appraisal Evidence When Seeking Deficiency.

For the ruling, see Empire Developers Group, LLC v. Liberty Bank, Case No. 2D11-1410 (Fla. App. 2d DCA, April 13, 2012).

(1) In reversing the trial court, the Florida appeals court enunciated the state law applicable in this case as follows:

• "[T]he correct formula to calculate a deficiency judgment is the total debt, as secured by the final judgment of foreclosure, minus the fair market value of the property, as determined by the court." Morgan v. Kelly, 642 So. 2d 1117, 1117 (Fla. 3d DCA 1994). "[T]he party seeking a deficiency judgment has the burden of proving that the fair market value of the property foreclosed upon was less than the total mortgage debt owed." Estepa v. Jordan, 678 So. 2d 876, 878 (Fla. 5th DCA 1996) (citing Coral Gables Fed. Sav. & Loan Ass'n v. Whitewater Enters., Inc., 614 So. 2d 682 (Fla. 5th DCA 1993)). And "[t]he critical date the fair market value of the real estate must be established for such purpose is the date of the foreclosure sale." Estepa, 678 So. 2d at 878 (emphasis added) (citing Cmty. Bank of Homestead v. Valois, 570 So. 2d 300, 301 n.1 (Fla. 3d DCA 1990)).

(2) To add insult to injury, the appeals court threw in this tidbit:

• We also note that the trial court erred in awarding Liberty Bank interest on the entire debt from the date of the final judgment of foreclosure through the date of the deficiency hearing. See Estepa, 678 So. 2d at 878 ("A secured party is not entitled to statutory interest on the entire foreclosure judgment following the date of the foreclosure sale.").
  
  Accordingly, on remand, "statutory interest may only be awarded against the remaining debt" from the date of the foreclosure sale. Shaw v. Charter Bank, 576 So. 2d 907, 909 (Fla. 1st DCA 1991).