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A deficiency in the mortgage foreclosure setting is the difference between the value of a lien on real estate (the amount due to fully satisfy a debt) and the price obtained by the Bank after foreclosing on the property (or the fair market value of the property).

Say, for example, you buy a home for $200,000.00. You put a down payment of $50,000.00 on it, and borrow $150,000.00 from a bank to cover the rest of the purchase price. There is now a $150,000.00 lien on your home – this is your mortgage, and the bank that lent you the money is your creditor-mortgagee. You are the debtor-mortgagor. Now, say, there’s a downturn in the economy, and you lose your job. You can no longer make your monthly mortgage payments to the bank. The economy has not been good to the bank either, and it cannot afford to (or doesn’t want to) let you continue to default on the debt you owe to it. The bank has the option to foreclose on your home; it can order you to pay, or else to vacate your home so it can sell it and use the proceeds to satisfy your debt.

But here’s the problem: you still owe the bank $140,000.00 of principal and interest on your mortgage. And while your home was worth $200,000.00 when you bought, the economic downturn has reduced your home’s value to only $120,000.00. So, when the bank forecloses on and sells your home, it only gets money equal to your home’s reduced value ($120,000.00). The difference in the amount you owe the bank on your loan ($140,000.00) and the proceeds of your home’s foreclosure sale ($120,000.00), in this case, $20,000.00, is called the deficiency.

A deficiency does not automatically result in a deficiency judgment being entered against you; in other words, you will not always be held personally liable for (or made to pay) the deficiency. In Florida, the bank may specifically seek, during the foreclosure lawsuit or at later time, but not longer than 5 years from the date of the foreclosure sale, to obtain a deficiency judgment against you for any balance due. (Update: Florida Deficiency Foreclosure Claims: Now there’s a One Year Statute of Limitations Deadline For Banks to Pursue a Deficiency) At a hearing, the bank must prove that the value of your home on the sale date was less than the amount still outstanding on your mortgage. In my experience, I have seen that some banks are pursuing deficiency judgments or at the very least are preserving their rights to do so at a later date.

Back to our hypothetical – if a deficiency judgment is entered in favor of the bank and is appropriately recorded, it can be levied against any personal and real property you own (or might own) for up to 20 years. So, if you are in a situation where your lender is foreclose against you and your property, I advise that you consult with an experienced Florida real estate or foreclosure attorney immediately, who may be able to negotiate an acceptable settlement with your lender on your behalf, including waiver of the banks right to seek a deficiency judgment.

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