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As most people are aware, the recent foreclosure wave hit Florida hard. Some lenders in Florida foreclosure lawsuits are adding insult to injury by pursuing deficiency judgments against some borrowers. The judgments — some for millions of dollars — could force borrowers into bankruptcy.

The good news for individuals facing foreclosure is that fewer banks are attempting to collect deficiency judgments against homeowners who have lost their homes in foreclosure. Instead, banks are going after businesses that still owe large amounts on their mortgages after a foreclosure sale. The lack of deficiency judgments on residential homeowners is in part likely due to the current stall in foreclosures, brought on by the robo-signing scandal we have written about in the past. Another reason for the small number of deficiency judgments against residential homeowners is completely political. Because many of the mortgages were handled by Freddie Mac and Fannie Mae, anyone the lender would go after likely pays federal taxes. Accordingly, lenders are reluctant to pursue those judgments.

Deficiency judgments do have a long shelf life however. In addition to the initial five years provided to file, lenders also have 10 years to collect on the judgment. Beyond that, lenders can seek another 10 year extension to collect the amount owed.

Depending on the specific situation, the smartest move for many individuals who signed personal guarantees for business mortgages may be to seek protection in bankruptcy court rather than try to repay a multi-million dollar shortfall. This is a complicated decision that is best discussed with an experienced attorney.

Source: Herald-Tribune, “When losing property in foreclosure is not enough,” Doug Sword, Sept. 19, 2011