Business and Legal Insights

A mortgage judgment in Florida does two things – it sets the amount owed to the lender, and it orders the sale of the mortgaged property and applies the proceeds to pay down the debt. Where the sale proceeds are insufficient to fully pay off the debt, the lender can get a money judgment against the borrower for the difference – a “deficiency judgment.”  This post addresses the deficiency judgment process.  A future post will discuss how the amount of a deficiency judgment is determined.

A mortgage foreclosure judgment is not a “money judgment,” even though it does set the dollar amount owed on the loan being foreclosed.  It’s really just the first of two steps in reducing an unpaid loan to a money judgment.  If this first step (sale of the mortgaged property) fully pays off the debt, the case ends there.  But often the mortgaged property isn’t worth as much as is owed on the loan, entitling the lender to take that second step – obtaining a money judgment for the balance still owed.

After a foreclosure sale, the lender may either seek a deficiency judgment in the foreclosure case itself, or may file a separate lawsuit for the deficiency. But there is a split of authority in Florida’s appellate courts on whether a lender may pursue a separate deficiency action where the foreclosure judgment has reserved jurisdiction in that case for that purpose. The Florida Supreme Court is expected to decide this issue in the near future.  (Compare, Dyck-O’Neal, Inc. v. McKenna, 198 So.3d 1038 (Fla. 4th DCA 2016) and Higgins v. Dyck-O'Neal, Inc., 41 Fla. L. Weekly D1376 (Fla. 1st DCA 2016).)

While deficiency rulings fall within the discretion of the court, they are the rule, rather than the exception.  Thomas v. Premier Capital, Inc., 906 So.2d 1139 (Fla. 3rd DCA 2005).  And the amount paid by an assignee to buy a mortgage is irrelevant to the amount of deficiency judgment to be entered. Ahmad v. Cobb Corner, Inc., 762 So.2d 944 (Fla. 4^th DCA 2000).

If the mortgaged property is a one-to-four unit residence, the deficiency must be sought within one year of the issuance of the certificate of title. (Section 95.11(5)(h), Florida Statutes).

A Florida court has jurisdiction to enter deficiency awards against non-Florida residents, since under  Section 48.193(1)(a)(3), Florida Statutes, the Florida long-arm statute, there is jurisdiction over non-residents who own real property in Florida.  Dyck-O’Neal, Inc. v. Moniz, 198 So.3d 1079 (Fla. 5th DCA 2016).

A borrower is not entitled to a jury trial on a deficiency claim because that is an extension of the relief to which the lender is entitled in foreclosure, and is to be heard by the court per F.S. Section 702.06. Kinney v. Countrywide Home Loans Servicing, L.P., 165 So.3d 691 (Fla. 4th DCA 2015). But where a deficiency is sought against someone who did not sign the mortgage, such as an endorser on a note, the lender cannot rely on the mortgage’s jury waiver to deny that defendant’s right to a jury.  Hobbs v. Fla. First Nat’l Bank of Jacksonville, 480 So.2d 153, 156 (Fla. 1^st DCA 1985).

Sale of the mortgaged property reduces the amount owed on the loan, so interest on the debt from that point runs only on the unpaid balance.  Empire Developers Group, LLC v. Liberty Bank, 87 So.3d 51 (Fla. 2d DCA 2012).  Once a deficiency judgment is entered, the lender may execute on it, the same as with any other money judgment.  Klauber v. First Fed. Bank of Fla., 198 So.3d 762 (Fla. 2d DCA 2016).

In Part II, we will take a look at how the Court decides on the amount of a deficiency judgment.  Stay tuned!