Thank you Richard Zaretsky, Esq., for putting this out for us to review!
This is rare but one can never be too certain…
Today I received a call from one of my blog readers asking me for help with a pleading he received months ago, that is now being scheduled for a hearing in August. This is a prime example of why Strategic Defaults or just walking away from a property can be so dangerous. The pleading is a Motion for Deficiency Judgment from a foreclosure judgment and sale that occurred but was (like most other foreclosure sales) acquired by the lender for a nominal bid. I and many others have been writing about this forgotten liability of borrowers.
Now here is an example of just what we said would happen, happening:
How the deficiency judgment hearing proof is presented to the court is discussed in my previous article on Foreclosure Deficiency Judgments and my original Back to Basics article. The essence is that a deficiency judgment to be issued must go through a hearing where the lender submits proof (evidence) of the value of the property. The borrower has the right to refute the values. Getting to the number works like this:
To figure get the balance of the monies the bank must go back to court to ask the court to award it a “Deficiency Judgment”. The amount is what is in question and the amount is measured using various rules. Let’s assume the bank bid $100. The court is not going to say that the house was worth $100 and $324,900 is still owed. For our assumption we will say that the property is worth $200,000 and the foreclosure judgment is for $325,000. That means the court will ask for an appraisal of the property as of the day of the foreclosure sale and the judge will likely give it that value. So it will be the appraisal value less the judgment amount which will equal the Deficiency Judgment. If the appraisal is $250,000, the Deficiency Judgment would be $75,000. Now if there was real bidding at the foreclosure sale the judge could consider that bidding and instead adopt the selling price under the competitive bidding process that occurred at the foreclosure sale. Then the Deficiency Judgment would be the difference from the foreclosure judgment and the winning bid amount. If the competitive bid was $240,000, then the Deficiency Judgment would be $85,000.
Back to the real life person with his August hearing – we suggested that before he retain us to negotiate with the lender on the deficiency amount and terms as a possible settlement without going to court, he try it himself. We also suggested he speak with a bankruptcy attorney as there may be some planning opportunities available for him before the judgment is entered – if the negotiations don’t work.
Remember, a money judgment – that is what a Deficiency Judgment is – gives the judgment holder broad powers to collect the money, including garnishment and attachment of assets (like bank accounts). Fraudulent Transfer Acts in the various states will block or take back transfers made to “hide” money from creditors. See the article at CNN Money.
Copyright 2010 Richard P. Zaretsky, Esq.
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com – FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW – We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com.
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