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  1. #1

    Default Possible Deficiency After Foreclosure in Florida

    My question involves a mortgage in the state of: FL

    The situation is a bit complex but I think the questions are straight-forward. I'm hoping to get a grasp on things to decide how to proceed. Husband and wife own a home in FL. There is a 1st mortgage for $115k and a 2nd for $50k, while the house is currently worth around $105k. The husband filed BK7 and included both loans. The wife did not file. The payments were current and the house is basically a ride-through. Something has come up and they need to move across the country. I know the wife is still responsible for both loans. There have been efforts to settle in exchange for releasing the 2nd lien and satisfying the note, but those have not gotten very far yet. If this happens, it's reasonable that the house could be sold the "old fashioned way" and some cash could be brought to closing to shore up the 1st. For now, payments have stopped on the 2nd and the 1st will be kept current. However, we are now planning for the worst case scenario. Say that the 2nd does not budge and the owners walk...

    Is it true they can sue the wife for the deficiency on either or both loans, but the husband is in the clear?

    Can the 2nd sue while the 1st is kept current? Must they foreclose before doing so?

    Is it less/more likely that they will pursue for smaller amounts and is there a theoretical threshold?

    Is settlement typically possible before the judgement? After the judgement?

    What are the long term consequences for the wife? I think that, if they pursue a judgement, it's good for 5 years and can be renewed for another 5. Is that correct? They can garnish wages, seize assets, etc (there are no assets really but she wouldn't qualify for a BK7 now due to combined income).

    If they do go this route, how would this work considering the husband was discharged BK7? Is there a fine line between trying to collect income and assets from the wife and violating the permanent stay for the husband?

    If after moving the wife is unable to find work and has no major assets, is she essentially judgement-proof? Is it reasonable to wait it out at that point?

    And one final thought/question... they do not seem to be aware that only the husband filed. Both mortgages reported the account as included in BK for the husband and wife. No reporting has occurred since the discharge and no calls or communication have been initiated thus far by the 2nd. Is it possible that this continues to go unnoticed?

    Thanks so much for reading. Obviously I've been mulling this one over a while hoping to make the best decision.

  2. #2
    Join Date
    Sep 2005
    Behind a Desk

    Default Re: Possible Deficiency After Foreclosure in Florida

    If the husband has discharged his liability for a joint debt through bankruptcy but the wife has not, the creditor (subject to some narrow exclusions that do not appear relevant here) may continue to pursue the wife for the money she owes.

    If you default on a mortgage, that mortgage lender may seek foreclosure and a deficiency judgment even if other mortgage lenders are being paid.

    Whether and on what terms a judgment creditor might settle a debt will depend upon the amount owed, the creditor's policies, the debtor's assets.

    I'm not going to speculate about future jobs or assets. Keep in mind that the wife has an interest in the marital estate that could potentially be attached even if she tries to hide her assets under her husband's name or chooses not to work, and that fraudulent conveyance laws can come into play when you try to shift assets to other people to hide them from creditors.

    The fact that the wife's credit report lists the bankruptcy does not, of itself, mean that they believe it was a joint bankruptcy. I am not going to speculate on what they believe or whether and when they might correct an assumed error.

  3. #3

    Default Re: Possible Deficiency After Foreclosure in Florida

    Thanks Mr. Knowitall.

    There are no major assets at this time for either party (at least not that would exceed the typical exemption allowed under Bankruptcy). Since the original filing both have been working to pay down the remaining debts in her name (around 40k in CC debt) so really they own no more/less than they did upon first filing. Income has improved, but that could change if the wife is unable to find work once relocated. I've run through a means test and, in that situation, she could qualify for BK7 on her own. If she does find work, it seems that with a judgement the most they could garnish is 25% of income, which is not insurmountable.

    Knowing that I think the plan will be to see how far down the rabbit hole she can go to see if they will settle the 2nd or pursue litigation, and to react accordingly.

    Thanks again.

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