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Deficiency Judgment More Likely From Second Mortgage
I have often written about mortgage deficiency judgments pointing out that up to now few institutional mortgage lenders are pursuing deficiencies in Florida. Borrowers should distinguish between personal liability on first and second mortgages. When either the first or second mortgage holder forecloses the first mortgage will likely take back the property. The first mortgages gets land which eventually can be sold. The second mortgage holder gets nothing at the foreclosure sale. If the first mortgage holder pursues a deficiency judgment (and again, this is usually not the case), the borrow can defend the action in part by arguing that the mortgagee has been satisfied by its repossession of the property. The borrower does not have this defense against the second mortgage. The second mortgage, having received nothing of value in a foreclosure, can sue on the mortgage note. The second mortgage can simply demand repayment of the promissory note underlying the mortgage without going through a foreclosure proceeding. The property value is irrelevant when the lender sues to collect the note.
I have not seen any case to date where a first or a second mortgage lender has sued the homeowner personally. I think the risk of personal liability is significantly higher when there are more than one mortgage obligations. It is also more likely that a second mortgage lender who does not foreclose can wait up to five years to bring suit on the underlying note after the first mortgage lender’s foreclosure action is complete.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida.
July 24, 2008 in Planning Tips | Permalink
Comments
I am very impressed by the worries of the homeowners. They want to walk away from the property. Also, they are afraid of deficiency judgment, which is not probable. My understanding is that the homeowners in distress have to use all of the tools available to stay longer in their homes. Those are: first three months of delinquency (no consequences), then forbearance agreement (can buy up to 6 months), then short sale (2 or 3 of those can buy you more than 2 years). Knowledge is power. And it is not a rocket science. Conclusion - do not walk away from your home. Learn - there are many free resources and take action.
Posted by: Margarita | Nov 16, 2009 4:43:43 PM
In November of 2008 we suffered a foreclosure sale on our home in Cape Coral. In our case both the first mortgage and the second mortgage were with the same financial institution. Is it possible, therefore, to use the defense that the foreclosure sale of the property pursuant to our liability with respect to the first mortgage not only satisfies the first mortgage note but also the second mortgage note because the lender of both first and second mortgages is the same financial institution?
Posted by: Hampton S. Tonk | Aug 18, 2009 3:44:57 PM
My wife and I purchased a Condo/Townhouse in Ft Lauderdale Florida for $197k in 2005. We refinanced out of our conventional mortgage in 2007 to a fixed rate before it ballooned with CountryWide mortgage company. Since we did not have any money for closing it was added to the mortgage which put the total amount owe at $204k. After the refinance we had taken a HELOC with Eastern Financial Credit Union for $30k. We re-modeled our kitchen and added a covered screen patio. After that my wife gave birth to twin boys in May 2008. A few months later the real-estate market started to go south in our area. Two houses down from us a house was sold for $125k and several homes became vacant in my neighborhod. The home owners association is very high which is at $358 a month. My kids just started day care which now cost us $220 dollars a week. Things have really tighten up financially and my wife and I are living pay check to pay check. We have medical bills for the twins that seem to never stop coming. We have lots of family that will allow us to stay with them or even let us rent a home. Can we walk away and not be threatened?
Posted by: AK | Jul 2, 2009 2:20:35 PM
I have 4 commercial loans that were in default when the FDIC closed the bank. I live in the State of Washington. I have a residence on 5 commercial acres that is worth over a million dollars and I owe very little on it.
This state has a statue excluding ones personal residense from a deficency judgement, which the FDIC is persuing. What can they do to me or my resience.
Posted by: Bobby | May 21, 2009 11:35:49 PM
I have a home in Manatee, which was my primary residence. Like many I was upside down and walked away from it a year ago. I only had the one mortgage.
I found a home I plan on buying in Sarasota. I am concerned that when the bank of home #1 finally forecloses on it, (why they haven't done it since I haven't made payments in a year, I dont't know), they will come after me with a Deficiency Judgement and put on lien on me or my new home #2 which I paid cash for.
Should I be? Are they avenues I can pursue to protect myself?
Posted by: Mark W | May 13, 2009 10:28:43 AM
hOW DO I DEFEND MYSELF FROM A CORPOATION SEEKING A DEFICIENCY JUDGEMENT AGAINST ME AFTER I DID A SHORT SALE AND SECOND TRUST RECEIVE SOME MONEY TO RELEASE THE LIEN BUT WANT TO PURSUE THIS JUDGEMENT.
Posted by: WILLIAM TWUMASI | Mar 27, 2009 11:55:48 AM
I purchased a condo in Florida when I was single. I am now married and a resident of Wisconsin. My husband has a business and a home in Wisconsin. My name is not on the title to the home nor the business. The value of my condo has dropped. It is only worth $60,000.00 and I owe $125,000. I tried to rent the condo but was unsuccessful. I am behind on 6 payments. The lender has started foreclosure proceedings. My husband and I are both on social security. Can the lender pursue a dificiency judgment against me in Wisconsin and would my husband's assets be at risk?
Posted by: Ruth | Feb 6, 2009 10:04:21 AM
I have a florida condo valued at $30,000 owe $82,500 at 10.8%
Chase would not budge so I stopped paying. Rep called me today to state they would not foreclose. They plan to just write off the note. What happens after that? Does the $82,500 lien remain on the property and if so, is compounded interest added to the time of sale?
Posted by: Roslyn | Feb 3, 2009 6:26:46 PM
Wondering if you have advice for this unusual situation . . . We have a FL primary residence with a first mortgage and an equity line (second). After we stopped making payments, both banks filed for foreclosure, but the bank with the second mortgage got a foreclosure judgment (with our encouragement). The court set two dates for the foreclosure sale; each time the bank had the court clerk postpone or cancel the sale date. At this point, the bank with the equity line has a judgment, but seems to not want to proceed with the sale. Most recently, they sent a fax saying they were "writing off" the loan. We have heard nothing from the first mortgage. We have moved out of state, and want closure. We have a decent appraisal that should eliminate or minimize any right to a deficiency judgment.
Posted by: aadams | Jan 18, 2009 11:24:44 AM
At some point many of these unpaid first and second mortgages will be in the hands of the FDIC as assets of failed banks. The JDC program that was part of the RTC is now administered by the FDIC, and they will sell the debts for a penny on the dollar, with the proviso that the FDIC will be paid 50% of whatever the Junk Debt Buyer collects.
http://en.wikipedia.org/wiki/Resolution_Trust_Corporation#JDC_Program
JDBs eat only what they kill. That makes them keen predators...
Posted by: Mark Hankins | Aug 7, 2008 12:52:52 PM
