A loan deficiency, or deficiency balance, occurs when the proceeds from a foreclosure sale or short sale of a property are insufficient to cover the outstanding mortgage balance. The lender may pursue a deficiency judgment against the borrower to recover the remaining debt.
How It Applies to Florida Landlords
Florida is a recourse state, meaning lenders can generally sue borrowers for the difference between the sale price and the total debt, including late fees and legal costs. If you hold a mortgage on a rental property in Florida, your loan agreement likely includes a provision for personal liability. Landlords should be aware that even if the bank agrees to a short sale, they may still be liable for the deficiency unless a written release is obtained.
Key Takeaways
- Florida lenders can pursue deficiency judgments for unpaid balances.
- Debt relief from a deficiency may result in taxable 'cancellation of debt' income.
- Always seek a formal deficiency waiver from the lender during a short sale.