Recently on October 1, 201 the Wall Street Journal published an article written by Jessica Silver-Greenberg addressing the recent increase in deficiency judgments in the mortgage foreclosure arena. In the State of Florida, along with forty (40) other states and the District of Columbia, lenders are permitted to seek deficiency judgments after real property has been sold in a foreclosure sale. In its simplest terms, a deficiency judgment is a final judgment for money damages in favor of the lender for the difference between the amount of money the lender realized from the foreclosure sale (with certain exceptions if the fair market value at the time of the sale is not realized) and the amount of money still owed to the lender after the sale.
Clearly there is a new cottage industry on the rise. There are firms and funds that are now in the business of buying deficiency judgments. Specifically, the article in the Wall Street Journal correctly states that lenders are now inclined to seek deficiency judgments from “Strategic Defaulters”. A Strategic Defaulter is a borrower that has the financial wherewithal to meet its financial obligations, but elects to default on his or her mortgage due to the fact that the property securing the obligation is worth less than the loan balance. “Some close observers of the housing scene are convinced this is just the beginning of a surge in deficiency judgments. Sharon Bock, clerk and comptroller of Palm Beach County, Fla., expects a massive wave of these cases as banks start selling the judgments to debt collectors. The increase in deficiency judgments has sparked a growing secondary market. Sophisticated investors are ravenous for this debt and ramping up their purchases, says Jeffrey Shachat, a managing director at Arca Capital Partners LLC, a Palo Alto, Calif., firm that finances distressed-debt deals.”
Clearly there is a new cottage industry on the rise. There are firms and funds that are now in the business of buying deficiency judgments. Specifically, the article in the Wall Street Journal correctly states that lenders are now inclined to seek deficiency judgments from “Strategic Defaulters”. A Strategic Defaulter is a borrower that has the financial wherewithal to meet its financial obligations, but elects to default on his or her mortgage due to the fact that the property securing the obligation is worth less than the loan balance. “Some close observers of the housing scene are convinced this is just the beginning of a surge in deficiency judgments. Sharon Bock, clerk and comptroller of Palm Beach County, Fla., expects a massive wave of these cases as banks start selling the judgments to debt collectors. The increase in deficiency judgments has sparked a growing secondary market. Sophisticated investors are ravenous for this debt and ramping up their purchases, says Jeffrey Shachat, a managing director at Arca Capital Partners LLC, a Palo Alto, Calif., firm that finances distressed-debt deals.”
To read the entire article in the Wall Street Journal go to: http://online.wsj.com/article/SB10001424053111904060604576572532029526792.html
At Saraga & Lipshy, P.A., we counsel our clients to take a more proactive approach to avoid the deficiency judgment dilemma when at all possible. We have spent countless hours negotiating with lenders and have concluded that lenders would prefer not to resolve mortgage defaults through foreclosure and potentially having to take back the property. To the contrary, even when dealing with strategic defaulters, most lenders prefer to work with a borrower who has taken the initiate to put together a short sale. Likewise, borrowers are in a much better position to control their own destiny by working with a broker/realtor seasoned in short sales and an experienced law firm, such as Saraga & Lipshy, P. A. to negotiate the best possible solution; (even if it means having to bring some money to the closing table or signing a new deficiency promissory note for a portion of the short sale balance on the original note). The bottom line is that the lender and borrower decide how much the lender is willing to forgive and how much is still owed to the lender, as opposed to a judge making a final determination after the conclusion of the foreclosure sale. This is one of the many reasons why at Saraga & Lipshy, P.A. we work with some of the best real estate agents in Florida and handle their short sale closings, so that their clients can avoid the taint of having a foreclosure sale on their record and the aggravation of a twenty (20) year deficiency judgment encumbering their future.
