If you closed on a short sale in the last five years and did not obtain a waiver of the unpaid balance owed to the first mortgage holder, you are at risk of now being sued for the difference – called a deficiency balance. This could be for tens or hundreds of thousands of dollars.
Lawsuits for deficiency judgments are likely to pick up in Florida following a recent case which held that the statute of limitations is five years following the short sale rather than the one year after a foreclosure sale. We were afraid this might happen and we advised our clients during the height of the short sales not to close without a deficiency waiver.
So any short sale that occurred before mid 2012 would be safe, those short sales that closed after mid 2012 are at risk.
In Bush v. Whitney Bank, 42 Fla. L. Weekly D1142a, (Fla. 5th DCA May 19, 2017) the Court in a three judge panel unanimously upheld the trial court finding that the one year statute of limitations in Section 95.11(5)(h), Florida Statutes (2015) government an action for deficiency was not applicable to a deficiency resulting from a short sale. The Court examined the statute which allowed for the then normal five year period to be reduced to one year for foreclosures. It found that the statute required the issuance of a certificate by a clerk or the acceptance of a deed in lieu of foreclosure. Neither of these items occur in the event of a short sale. So foreclosures and deeds in lieu of foreclosure are limited to the one year for any deficiency claims, while borrowers who closed on a short sale will have to wait a much longer five year period before they have closure on a bad real estate investment.
Most deficiency claims are quite large as they include all unpaid interest, principal, taxes, insurance, fees and other costs — as well an continuing accrual of interest for the past several years. Many banks will likely sell this unpaid debt to third party debt buyers.
While doing a short sale seemed like a good idea to get out of a mortgage the borrower could no longer afford, many Realtors did not understand that a short sale was not an automatic waiver of the deficiency. Separate negotiations are needed to take place to ensure this waiver was contained in the short sale approval letter. If you do not know whether your short sale included a deficiency waiver, or think that it did and are now getting collection letters, you can contact the title company for a copy of the short sale approval letter. We have seen mortgage companies file cases seeking a deficiency despite a waiver being in place. Those cases would be a violation of the agreement and the FDCPA and FCCPA – consumer law violations that an attorney would likely be very happy to pursue!
If you receive a collections letter or a lawsuit, it’s important to seek legal counsel right away. There may be defenses that can be raised and settlement opportunities that exist before a judgment is obtained. It is much harder to deal with a case after a Final Judgment is entered and wage or bank garnishment begins – sometimes impossible. For more information about deficiency claims, lawsuits, short sales etc., and you are in Florida or recently moved elsewhere after you let a home go in Florida, please set up a free consultation with Christie D. Arkovich, P.A.