Kimberly Miller, Palm Beach Post
Floridians who lose a home to foreclosure may be more doggedly pursued for their unpaid mortgage debt after a federal audit that says lender losses can be recovered by demanding payback.
That kind of collection process, called a deficiency judgment, is allowed in Florida, but has so far been rare.
The report, released Wednesday by the inspector general of the Federal Housing Finance Agency, says that recouping the debt can increase revenue to mortgage backers Fannie Mae and Freddie Mac, which own or guarantee about half of all U.S. mortgages.
“In addition,” the report notes, “pursuit against such borrowers may deter others who are considering default despite being financially able to make their mortgage payments.”
Florida law gives lenders five years to file for a deficiency judgment and up to 20 years to collect payment on that judgment. The amount is typically the difference between the unpaid loan balance owed by the borrower and how much the home fetches at foreclosure auction or resale.
Whether because lenders are too overwhelmed to pursue the debt or don’t feel it’s worth the effort, foreclosure defense attorneys report seeing few deficiencies filed.
“Given the way the market has been the last two years there has been more interest in pursuing them, but they still seem to be the minority of cases,” said John Bancroft, executive editor of the trade publication Inside Mortgage Finance. “I think in the past banks didn’t feel the success rate was going to justify the effort.”
In 2011, Fannie Mae and Freddie Mac pursued 35,231 deficiencies nationwide with a combined total value of about $2.1 billion. Of that, just $4.7 million, or 0.22 percent, was actually recovered, according to Wednesday’s audit.