Below is summary of the process to obtain a deficiency judgment and the subsequent collection process.
Step 1: Obtaining the Deficiency Judgment.
When a foreclosure sale results in proceeds that are less than the total amount owed, as reflected in the Final Judgment of Foreclosure, the plaintiff / lender may pursue a deficiency judgment against the borrower and any guarantors.
The right to pursue a deficiency judgment arises under § 702.06, Florida Statutes.
A deficiency may be pursued:
- Within the foreclosure action, provided the Final Judgment expressly reserves jurisdiction to seek a deficiency judgment or
- In a separate, subsequent action
You can pursue a deficiency judgment against the Borrower/Entity or the Guarantor in his/her individual capacity. In order to obtain a deficiency judgment against either party, personal service must be effectuated. Even if the Borrower or Guarantor was not personally served in the foreclosure action, you can still seek personal service against the party by issuing an Alias Summons and personally serving the Motion for Deficiency Judgment against the party.
From a practical standpoint, pursuing the deficiency within the foreclosure case is generally more efficient and cost-effective. Timely evaluation following the foreclosure sale is critical to preserving recovery rights.
The applicable statute of limitations runs from the date of issuance of the Certificate of Title and varies based on property type:
- Residential properties (property with 1-4 units):
1-year statute of limitations from issuance of the Certificate of Title
§ 95.11(5)(h), Florida Statute - Non-residential properties (property with 5 units or more):
5-year statute of limitations
§ 95.11(2)(b), Florida Statute
The deficiency amount is calculated as follows:
Total Debt Owed (per Final Judgment), minus Fair Market Value (FMV) of the Property at the time of the foreclosure sale. In addition, the lender is entitled to post-judgment statutory interest at the rate established pursuant to § 55.03, Florida Statutes.
If seeking the deficiency judgment within the foreclosure case, the Plaintiff will file a motion seeking a deficiency judgment. The Plaintiff bears the initial burden of establishing that the amount of the deficiency i.e. that the fair market value of the property at the time of the foreclosure sale is less than the total debt owed. Although there is a legal presumption that the foreclosure sale price equals the fair market value of the property, the foreclosure sale price is not conclusive. The Plaintiff typically presents evidence in support of the fair market value via submission of an appraisal of the subject property, as of the foreclosure sale date. Once the party seeking a deficiency judgment introduces evidence of the foreclosure sale price, the burden shifts to the judgment debtor to present their evidence concerning the property’s fair market value. The borrower entity and or individual guarantor(s) may submit their own appraisal of the subject property, as of the foreclosure sale date, or other evidence, in an effort to reduce the amount of the deficiency or prove that there is no deficiency at all.
Once all parties have submitted evidence regarding the fair market value of the property at the time of the foreclosure sale, the entry of a deficiency judgment is not automatic, as Florida courts retain discretion to (1) Award the full deficiency amount being sought; (2) Reduce the amount of the deficiency; or (3) Deny the deficiency in limited circumstances. This judicial discretion is often influenced by the quality of valuation evidence and overall equity considerations.
Step 2: Collecting on the Deficiency Judgment.
Once a deficiency judgment is entered, it acts as a money judgment that can be collected upon. The deficiency judgment should be recorded in the public records. Once recorded, the judgment creates a lien upon non-homestead real property owned by the debtor in any county where the judgment is recorded. That lien remains in effect for ten (10) years and may be extended for one additional ten (10) year period by re-recording it. Note, however, that the judgment itself (as a money judgment, not a lien) remains enforceable for twenty (20) years from the date of entry pursuant to section 55.081, Florida Statutes.
Our firm is equipped to engage in collection efforts through the Florida courts, including:
- Motion for Bank Garnishment
- Motion for Wage Garnishment
- Levy against assets
- Florida judgment debtors have homestead protection that prevent creditors from attaching to homestead property and forcing sale of a debtor’s primary residence
- Deposition of the debtor in aid of execution
- Request for Production of Documents
- Request for Admissions
- Interrogatories
The judgment debtor filing bankruptcy remains a potential risk. The mere filing of a bankruptcy petition is not determinative. It must be determined whether the specific debt has been discharged withing the bankruptcy.
Before pursuing a deficiency judgment, the Plaintiff may want to conduct an asset search to determine collectability of borrower and or guarantor. This analysis includes whether the borrower or guarantor owns non-homestead real property, has liquid assets available via garnishment, and has wage income subject to garnishment.
In many cases, seeking a deficiency judgment with the knowledge and skills to collect on it often serves as both a recovery tool and a leverage mechanism for pre judgment and post-sale settlement. The attorney handling the foreclosure case may gain leverage in settling the foreclosure case or obtaining a judgment faster if the Firm is equipped to seek and collect on the deficiency judgment.
Our Firm continues to actively evaluate deficiency opportunities across client portfolios and implement targeted recovery strategies where appropriate.
Please contact us with any questions or to discuss specific assets within your portfolio.