Deficiency Judgements After a Foreclosure Sale

            As a result of the COVID-19 pandemic, the State of Florida-through Governor Ron DeSantis Housing Foreclosure­imposed a statewide foreclosure moratorium last year. On the federal level, last month the Acting United States Department of Housing and Urban Development ("HUD") Secretary announced an extension of foreclosure moratoriums on federally-backed single family mortgages through March 31, 2021. Despite these moratoriums, Florida has one of the highest foreclosure rates in the country. According to ATTOM Data Solutions, one in every 7,338 housing units in August 2020 had a foreclosure filing compared to one in every 13,791 housing units in the United States.

            While many foreclosures are brought by lenders seeking to foreclose on mortgages, lien foreclosure lawsuits continue to be filed by condominium and homeowners' associations due to property owners' nonpayment of assessments. Under the Condominium Act, a foreclosure lawsuit must be filed within one year of the filing of the association's lien whereas the statute of limitations for homeowners' association foreclosures is five years. When a mortgage lender is not foreclosing, many of our association clients will proceed with a lien foreclosure lawsuit against an owner's property for non-payment of assessments even if the property may be underwater.

            A final judgment of foreclosure will state the amounts due to the association, and, if the owner fails to timely pay the total sum owed to the association, a foreclosure sale will take place. Where the proceeds from the sale are insufficient to satisfy the association's judgment, there will be a deficiency. In 1996, Florida's Fourth District Court of Appeal, in Maya Marca Condominium Apart. Inc. v. 0 'Rourke, established that associations may obtain deficiency judgments against foreclosed owners in situations where acquiring an underwater property through foreclosure does not make the association whole. Upon acquiring an underwater property, an association should determine whether to pursue a deficiency judgment against the owner personally, which decision hinges upon whether or not the owner is or is likely in the future to be collectible. Associations should keep in mind that a deficiency judgment, if obtained, remains collectible for up to 20 years.

            If the foreclosure judgment reserved jurisdiction to award a deficiency judgment, then the association may file a motion for a deficiency judgment in the existing lien foreclosure action. There are also circumstances where an association may file a separate action seeking a deficiency judgement. However, there is a relatively short period of time to seek a deficiency judgment after a foreclosure sale and waiting to see if the property is rented or if the first mortgage holder forecloses must be managed carefully. Associations interested in seeking a deficiency judgment should obtain an appraisal when an underwater property is acquired at the foreclosure sale to determine the property's fair market value. The association will need to establish that the value of the property is less than the first mortgage and any unpaid taxes to be granted a deficiency judgment.

            However, associations must be aware of time limitations to formally request a deficiency judgment. Recently, in Accardi v. Regions Bank, the appellate court clarified that the statute of limitations on a motion for deficiency judgment is one year after the certificate of title is issued. This limitation applies whether the motion is filed in the existing foreclosure case or a separate action seeking a deficiency judgment. The court said this is true even if there is a broad reservation of court jurisdiction and even if the complaint contains a prayer for a deficiency. The appellate court noted that the vast majority of deficiencies take place within the existing foreclosure case, and thus, it would make little sense that the one-year statute of limitation would only apply to the less common separate actions for deficiency judgments.

            Accardi illustrates that, should a deficiency judgment be sought, it is critically important for an association to seek a deficiency judgment within one year of the certificate of title being issued. Practically speaking, it can and should be done right away after obtaining title to an underwater property. In Accardi, which involved a mortgage foreclosure, the appeals court reversed a $532,518.93 deficiency judgment awarded by the trial court because the lender waited too long in taking action to obtain the judgment. Associations must be sure not to forfeit their right to a deficiency judgment following the foreclosure sale by timely filing their request for a deficiency judgment. Of course, the strategic decision relating to bringing a lien foreclosure action and filing a motion for entry of a deficiency judgment should be reviewed with legal counsel before proceeding.


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