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Last week, we began to discuss how one South Florida homeowner learned that a deficiency judgment was filed against him claiming that he still owed the bank $151,461 for the beach home he lost to foreclosure. The man has no full-time job and is struggling to make his rent payments. He claims he has no assets left that he can use in order to pay off the debt.

A deficiency judgment is the amount of money that a lender loses on a mortgage after a home has gone into foreclosure and is sold in an auction. For example, if a homeowner owes $500,000 on a mortgage and the home is only worth $300,000, the homeowner could be responsible for paying the $200,000 difference on the home, even after foreclosure. Although it is very rare for lenders to file a deficiency judgment, it is not a threat that former homeowners can ignore.

Florida is one of 38 states that allow lenders and banks to pursue deficiency judgments. In the state of Florida, a bank has up to five years before choosing to file a deficiency judgment. Once the judgment is filed, the bank can attempt to collect on the money for 20 years.

Although very few deficiency judgments have been filed compared to the number of foreclosures in Florida, some believe that banks are waiting to file the judgments because they have been bombarded with foreclosures. Deficiency judgments are also typically decided on a case-by-case basis with lenders choosing to go after previous homeowners they believe they have a better chance collecting from. Homeowners that choose to strategically default on their mortgages may be prime targets for deficiency judgments.

After the past few years of financial troubles, the man is now considering filing bankruptcy. He can’t afford to pay off the deficiency judgment and he is struggling pay his current living expenses. Many Florida residents may find themselves in a similar situation. However, bankruptcy does not have to be a last resort. Often, bankruptcy can provide the best solution for homeowners who need to reorganize or consolidate debt before debt gets out of control. Foreclosure is not inevitable as long as homeowners understand all of their options when it comes to finding a solution to their financial problems.


The Palm Beach Post: “Foreclosures’ hidden risk: Debt that haunts for two decades,” Kimberly Miller and Christine Stapleton, 28 Mar. 2011