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Florida property owners and anti-deficiency laws

When a home goes into foreclosure, the lender acquires the property and sells it to the highest bidder. In some cases, there may be a deficiency after the home is sold. A deficiency is the difference between the selling price of the home and the amount left on a mortgage. For instance, if a homeowner owed $500,000 on a home that sold for $400,000, there would be a $100,000 deficiency.

Anti-deficiency laws prohibit lenders from suing borrowers to claim the deficiency. In states where deficiency lawsuits are allowed, the amount owed may be wiped out through bankruptcy. Additionally, if a homeowner owes a deficiency on a primary residence, lenders are generally unable to collect on the deficiency. However, no such protection is granted to borrowers who owe on a second home, a vacation home or fail to repay a home equity line of credit.

In most states, the amount of the deficiency is based on the fair market value of the home when it is sold. If a homeowner owes $500,000 on a home that is only worth $400,000, the lender can only collect on the difference between the sale price and the home's value of $400,000. Therefore, if the home sold for $350,000, the lender may only go after a deficiency of $50,000 if state law allows it.

When sales of primary residential properties net less than what is owed on a mortgage, a deficiency may exist. If a homeowner is being pursued by a lender to cover that delinquency, it may be worthwhile to consult with a real estate attorney who can provide advice as to whether a homeowner owes the lender any money and whether there are any options to avoid or reduce the amount owed.

Source: Findlaw, "How Anti-Deficiency Laws Work", December 16, 2014

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