How to Avoid a Deficiency Judgment After Foreclosure

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After a homeowner has missed several mortgage payments, the lender has a right to file a foreclosure lawsuit in Florida. If the lender is successful with their case, the borrower will lose their home. Unfortunately, in Florida, the borrower’s troubles may not end there. In some cases, the lender may also pursue a deficiency judgment in order to recover any amount owing on the mortgage. These judgments, if awarded, mean that the borrower still owes money to the lender, sometimes tens of thousands of dollars.

This deficiency judgment will come at a time when the borrower is struggling financially. Indeed, the borrower could not even come up with the mortgage payments, and now they have not only lost their home, but they still owe money to their lender. Fortunately, there are ways to avoid a deficiency judgment after foreclosure.

A Solid Foreclosure Defense

Not every homeowner who faces foreclosure is going to lose their home. There are several defenses to foreclosure that are often successful. For example, if the lender attempts to foreclose but they do not have certain documents pertaining to the property, such as the note, they cannot prove that they own the loan. When this is the case, their foreclosure lawsuit is not going to be successful, so the borrower can often remain in the home. When there is no successful foreclosure lawsuit, there can be no deficiency judgment, so this is often the first option explored when a lender has started foreclosure proceedings.

Short Sale Agreement

When facing foreclosure, many borrowers ask their bank if they can sell the property in a short sale. If the bank agrees, the home is sold, usually for less than what is still owed on the mortgage. The proceeds from the sale go towards the debt that still remains, but there is still a balance on the mortgage the initial borrower owes. Lenders in these situations are allowed to file a lawsuit against the original borrower in order to recover the money from their debt.

However, when drafting the agreement to the short sale, a provision can be included that states the lender will waive their right to a deficiency judgment. If the lender agrees, they then cannot file a deficiency judgment lawsuit. Lenders do often agree to waive this right, but it is always better to work with an attorney that can negotiate on your behalf if you need to secure this type of agreement.

Deed in Lieu of Foreclosure

Another foreclosure defense that is often used is a deed in lieu of foreclosure. These agreements mean that the bank will accept the deed to the property instead of foreclosing to get the property’s title. This means that the borrower no longer owns the home, but that the lender does. Due to this, often the lender will still expect the borrower to vacate the home shortly after the agreement is drafted.

When this is the case, the borrower may still have a deficiency on the property. With a deed in lieu of foreclosure, this deficiency is the difference between the fair market value of the property and the total debt owed. Again, the lender can file a deficiency lawsuit against the borrower to recover the debt still owed. Just like with a short sale agreement, it is important to speak to an attorney that can help draft the deed in lieu of foreclosure agreement. Within this agreement, it is important to include a provision that the lender waives its right to file a lawsuit and secure a deficiency judgment in court.

Negotiating with the Lender

In certain situations, it is possible to negotiate with the lender. For example, a borrower may agree to leave the property in excellent condition and as soon as possible in exchange for the lender agreeing not to pursue a deficiency judgment. Or, the borrower may agree to pay a fixed amount that is less than what is still owed on the property in exchange for the lender agreeing to waive their right to file a deficiency lawsuit.

The Statute of Limitations on Deficiencies

Most debt in Florida has a statute of limitations. This means that the lender can only pursue a lawsuit to recover that debt within a certain amount of time. The same is true for deficiencies. When a home is foreclosed and sold, the lender has only one year from the day after the property is sold to another buyer to pursue a deficiency lawsuit. If they fail to do so within that time, the courts will likely throw out the lawsuit because the statute of limitations has expired.


Bankruptcy is the best option for many people who are in a great deal of debt and cannot pay it off. While bankruptcy will discharge many types of debts, including credit card debt and certain loans, it will also discharge any deficiencies left over after foreclosure. When filing for bankruptcy in order to avoid a deficiency judgment, it is important to file for Chapter 7, which will completely discharge the debt. A Chapter 13 bankruptcy only restructures the debt and makes it more manageable for the debtor to pay off.

Tax Implications of Avoiding Deficiency Judgments

While the above ways are all sound methods of avoiding a deficiency judgment, it is important to know that there are tax implications associated with all of them. Any time a debt, such as a deficiency judgment, is forgiven, the IRS considers forgiven debt as taxable income. Due to this, when it is time to file your income tax, you will have to declare it and, depending on the amount forgiven, you could still owe a certain amount associated with the deficiency. Still, many borrowers find the tax implications are not as great as being responsible for the entire deficiency.

Our Florida Foreclosure Defense Lawyers Can Help You Avoid a Deficiency Judgment

Just as there are many defenses to foreclosure, there are also many ways to avoid a deficiency judgment. Most of them will involve negotiating with your lender, which many borrowers find difficult to do. At Loan Lawyers, our Fort Lauderdale foreclosure defense attorneys can review your case, advise you of your best option, and speak to your lender on your behalf to give you the best chance of a successful outcome. If you are facing foreclosure, call us today at (954) 523-HELP (4357) or contact us online to schedule your free consultation.

Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.