When you buy a home with mortgage funds, you sign two primary documents, the Promissory Note and the Mortgage Instrument. The Note is the promise to pay the financed amount under certain terms. The Mortgage is a document that allows the lender, under certain events of default (non-payment, waste, non-payment of property taxes, etc) to seek foreclosure to recover both possession and legal title to the property. When the lender actually does complete a foreclosure, the property is sold on the courthouse steps by the Clerk of the Court to the highest bidder. More often than not, the buyer is the mortgage lender. Often times the sales price is far less than the balance owed. The Lender is permitted by Contract (The Mortgage) and by Statute to ask the Court for a Deficiency Judgment against the borrowers for the amount between the fair market value at the time of the sale and the balance owed. The fair market value is the value which a willing buyer would pay a willing seller in an arm’s length transaction.
The lender currently has a five year statute of limitations to ask the Court for a Deficiency. This five year period may be reduced in the future as part of a Bill pending in Florida but it is currently five years. The deficiency is dischargeable in a bankruptcy and can often be negotiated away as part of a negotiated foreclosure result.
Some consumers chose to fight the application for the deficiency on the basis of disputing the lender’s valuation of the property at the time of the sale. That type of litigation is expensive and largely unnecessary with the variety of ways to resolve a mortgage default and foreclosure. Disputes over determining the value of property are complicated because real estate valuation is hardly a science but falls in the realm of experts and expert opinions.
If you have a mortgage delinquency or a pending foreclosure you need to consult with experienced counsel who can explore and help you navigate through the many remedies available to avoid an adverse result in a foreclosure where the lender seeks a deficiency. As complicated as it sounds, all of these types of problems are manageable with good advice and legal counsel so you understand your rights and remedies as they develop and make the best, most prudent decisions possible.