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Foreclosure: Beware of Continuing Financial Liability After The Sheriff's Sale
Posted by: Marlyn Wiener
December 27, 2007
Topic: Foreclosures
I received a question today regarding continuing liability after a home has been lost to foreclosure. The homeowner wanted to know if he fell behind in his mortgage payments and lost the home in foreclosure, would he have any further liability. The answer is - he might have significant continuing liability. Under Florida law, if the foreclosure action is completed, the house will be sold at Sheriff's Sale and the homeowner will lose the property. If the value of the property on the date of the Sheriff's Sale was less than the mortgage balance, the bank will have the option to file a motion for a deficiency judgment after the foreclosure sale. This is an additional court proceeding that could result in a personal judgment against the homeowner for the deficiency. The bank could take steps to nforce this judgment against the homeowner's other assets. In addition, there may be federal income tax consequences in connection with a foreclosure proceeding and subsequent deficiency judgment, a short sale, or a deed in lieu of foreclosure. Depending on the facts and circumstances, the homeowner could receive a 1099 reporting income for the forgiveness of the mortgage debt. Bottom line: allowing a property to go into foreclosure might not be the end of personal liability for obligations related to the property. A deficiency judgment and/or 1099 income are possibilities. If you are facing a foreclosure, I urge consultation with a real estate attorney as soon as possible to evaluate the facts of the situation and explore the possible strategies and consequences.
