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What Happens After the Foreclosure?

Lately, many client calls have centered around questions about what happens after the lender has foreclosed on the client’s property. Read more to see our answer to these questions.

After a lender forecloses, the lender may elect what they want to do regarding the balance of the funds they are owed under the mortgage note. It is customary, especially now, that the property that was foreclosed was not worth the amount owed under the final summary judgment of foreclosure. As such, the value of the property is “deficient” to cover the amount owed to the lender.

Based on the lender’s decision, they will have a choice as to whether to issue IRS form 1099-A or 1099-C. The 1099-A merely means the lender has taken possession of the secured collateral for the loan (the land) but they have not yet written off the debt. If a borrower discovers that the lender has issued a 1099-A, then chances are that the lender will continue to pursue the borrower for payment in full of the debt. If the lender issues a 1099-C, it would indicate that they have written off the balance of the loan amount and are calling it a day. This is not always the case, but is more likely than not.

If the lender wants full payment for its loan amount, it may seek a deficiency judgment through the same foreclosure lawsuit that permitted the bank to take the property in the first place. The only instances where we have consistently seen local (Central Florida) lenders seeking deficiency judgments are in Bella Collina and Reunion (both Ginn developments that were purchased almost exclusively by investors intending to flip the properties).

If the lender wants to pursue a deficiency, they have up to five years after entry of the foreclosure summary judgment to file their motion for deficiency judgment. At that time, they must provide an appraisal acceptable to the court that proves the value of the property on the date that the summary judgment of foreclosure was entered. A borrower can also obtain her own appraisal to see if they can get a higher value. This will then become a battle
of appraisals. If the borrower’s appraisal comes in at a higher value, then it could sway the judge to reduce the amount of the deficiency judgment.

Such judgments will be a lien upon all real and personal property owned by the debtor in the county where it is
recorded. Also, the lender can record the lien on a statewide level, and it will be a lien upon all personal and intangible property held by the debtor anywhere inside Florida. The judgment may also be certified and recorded in any other county where the debtor owns real property so that it becomes a lien upon that real estate.

The lien is valid and enforceable for 10 years, and may be renewed for another 10 when it expires. It will not attach to exempt property (i.e. homestead property, retirement accounts, and certain wages), and the creditor bank will usually pursue collection of the judgment. If the debtor declares bankruptcy, then the judgment (if included in the petition for bankruptcy) will be extinguished.

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