More On Mortgage Deficiency Judgments
In the current real estate recession many of my new clients are investors who purchased too many residential rental properties too late in the market cycle. Most of these people are frustrated because their mortgage lender will not negotiate to adjust payments until the market improves. They also fear the lender's active pursuit of deficiency judgments if there is a foreclosure. This past week I discussed the current mortgage and real estate situation with a man with over 25 years in the mortgage lending and banking business. What he told me may interest some of you.
He explained that most people believe that their mortgage lender is the neighborhood bank or mortgage company with whom they placed the mortgage initially. In today's global economy, once a loan is issued the mortgage note is then packaged with other mortgages and then sold to much larger financial institutions. He said that large hedge funds buy millions of mortgage debt and then turn the mortgages over to another company for servicing. These large hedge funds cannot negotiate mortgage adjustments with individual borrowers; they cannot make separate deals with each person who claims financial trouble. The large mortgage service companies adopt policies that apply to everyone and then uniformly apply these policies. Most often, if you are not already in default, the mortgage service company has no program to help you.
Although some of the hedge funds and service company go for deficiency judgments after foreclosure, most do not. These large financial institutions which hold most of the residential mortgages are not set up to litigate deficiency judgments because the ability to get a deficiency and the amount of the deficiency is different in every case. The individual I spoke too also pointed out that in "bank think" a person who cannot pay his mortgage probably is not financially able to pay a deficiency judgment so it does not pay the mortgage service company to pay additional legal fees to get deficiency judgments.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida
I have a question regarding deficiency judgments. I own a condo. in Palm Beach Gardens, FL. I owe about $40K more than what the condo. is worth so I may have to foreclose or do a short sale. What is the process of collecting deficiency judgments? If a judgment is entered against me can the lender come after my bank accts., cars, other property?
The bank does have a right to satisfy the deficiency judgment with your other assets ex), bank accounts, autos, boats, garnish wages, etc... However, the reality is that it is unlikely that the bank would do this. It is costly for the bank to hire attorneys to seek and attempt to sieze your assets. Moreover, Florida has many debtor laws that will protect the debtor from having his assets siezed. Ex) retirement exemption, head of household exemption, homestead, etc.. So the reality is the bank will not exercise this right to go after your for the deficient amount.
If you would like more information you can get my contact information from the Florida Bar website Jason Zielinski, Esquire. Good luck
Often Florida real estate law is similar to California. Unless there has been a change in California law since my retirement in 2003, deficiency judgements were not valid nor applicable by law on purchase money transactions. So, in a worse case scenario (for the borrower), a deficiency judgement might only be secured if the loan originated as a refinance of a prior mortgage. Further difficulty in obtaining a deficiency judgement would result from the "beneficiary"'s inability to produce the actual note secured by the mortgage. Besides the delays in the normal transfer of servicing transactions, which provide liquidity for mortgage servicing, the actual note, which is the only true collateral for the loan when it was originated, may be buried within a security located almost anywhere in the world. This becomes problematic for the forclosure process itself let alone a deficiency judgement after the fact. Lately, this issue is being used as a defense against the initiation of the forclosure proceeding itself.
I recently started the Short Sale process on my property and thought I had gotten to the finish line until Bank of America decided they wanted to recover 100% of the loan difference, or the Deficient amount. They told me they would be sending me documentation, which I have yet to receive, that would outline my commitment to sign over the deed on the property for the short sale but at the same time sign a unsecured note for the difference. I would then have to negotiate with their "Recovery" department on what may or may not be written off or paid back. Has anyone heard that this is what the banks are now doing? What is the incentive to short sale if you are taking a gamble on what you may have to pay back? Why not just go to foreclosure as it appears that banks are not coming after you then for Deficiencies anyway. Thanks.
So worse case scenario after losing your house to foreclosure the bank comes after you with a deficiency judgment. Can you then declare a chapter 7 bankruptcy to have this judgment invalidated? This is for individuals who have no assets and I would think the bank stupid for going after someone who has nothing and racking up additional legal bills ...