Unanticipated Threat Of Deficiency Judgments Lingers Over Now-Foreclosed Ex-Homeowners When Sales Proceeds Fail To Cover Unpaid Mortgage Debt

In Sarasota, Florida, the Sarasota Herald Tribune reports:

• Since the great recession took hold in Southwest Florida, thousands of mortgage borrowers have lost homes to grueling foreclosure fights that often take up to three years.
  
  But for many, losing their home is not the end of the financial hit they suffer. That's because many foreclosures come with an unanticipated hangover, in the form of thousands of dollars of additional penalties stemming from lenders' inability to sell properties at prices equal to the amount originally financed.
  
  Called deficiency judgments, they are permitted in Florida because the state permits "recourse," allowing banks to pursue defaulting customers for the difference between the amount owed on the original loan and current market value. Even more damaging to consumers, banks can seek to be repaid their attorney's fees and court costs.

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• Many homeowners assume, incorrectly, that when lenders foreclose on their properties and take control of them, their debt is forgiven. But for many, deficiency judgments add to the pain of foreclosure and sometimes years to the effort of buying another home. To get recourse, banks can dock borrowers' salaries and even seize money from personal checking accounts, experts note.
  
  The law is not new, but local foreclosure attorneys warn that most borrowers now navigating a foreclosure -- which are at record levels and growing, the result of re-filings that ramped up statewide toward the end of 2012 -- are unaware of those potentially costly consequences.
  
  Now that banks have clearer, and more streamlined, guidelines for repossessing homes -- the result of the $25 billion fraud settlement last spring -- many are becoming more aggressive in pursuing deficiency-related losses, real estate counselors say.

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• And while most large lenders do not go after customers' assets after a foreclosure, not all are willing to relinquish the debt they are entitled to by law. In particular, lenders have become more aggressive in pursuing deficiency judgments if they have reason to believe a borrower was using a home as an investment property instead of as their primary residence.

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• Florida is among 41 states, together with the District of Columbia, that permit lenders to sue borrowers for lingering mortgage debt left behind after a foreclosure.
  
  The statute of limitations [in Florida] for banks to file for a deficiency judgment is five years after the default, attorneys say. But that, too, could change. State lawmakers have pushed to reduce the time frame to one year.

For the story, see Home loss is not the end of the bad news.