In Florida, a foreclosing lender has the right to pursue a deficiency judgment in court against a borrower in default after the home is sold at court auction. This deficiency can include not only the defaulted amount but also legal fees accrued in pursuing the borrower but also back penalties and interest (often several years worth). Judgments attach to the borrower and can become liens on other properties the defendant owns and can lead to garnishment of wages.
The statute of limitations on deficiency judgments in Florida typically lasts for:
- Five years from the time the borrower missed his first payment (in the case where the lender accelerates the debt); or
- Five years from the date of the last scheduled but missed payment (in the case where the lender doesn’t accelerate the debt) – which can go beyond the initial five-year rule.
One of the basic goals of a short sale transaction is to persuade the lender to waive the right to a deficiency judgment in exchange for a reasonable buyer at today’s market value.
It’s important to note that there’s a lot of conflicting advice on this subject, and many professionals will advise owners to accept short sale payoffs that don’t waive the right to pursue deficiencies. There’s some merit to this argument – to date, lenders haven’t been aggressively pursuing these judgments, and if the home makes it to court sale the right is granted anyway – but we ALWAYS fight through the teeth for deficiency waivers.