Florida Real Estate Broker ExaminationReal Estate Finance and InvestmentHard
A Florida property owner defaults on their mortgage, and the lender initiates foreclosure proceedings. The property is sold at auction for $300,000. The outstanding loan balance is $350,000, and foreclosure costs amount to $20,000. In Florida, what action can the lender take to recover the remaining debt?
- ASeek a redemption period extension
- BInitiate a short sale
- CFile for a deficiency judgment
- DExecute a deed in lieu of foreclosure
Show answer & explanationAnswer & explanation
Correct answer: C. File for a deficiency judgment
When a property sells for less than the outstanding mortgage balance plus foreclosure costs, Florida law allows the lender to seek a deficiency judgment against the borrower for the difference. The total owed is $350,000 + $20,000 = $370,000. The sale covered $300,000, leaving a $70,000 deficiency.
Why the other options are wrong
- A. A redemption period allows the borrower to reclaim the property, but it doesn't address the remaining debt after a sale below the balance.
- B. A short sale is an alternative to foreclosure, not an action taken after a foreclosure auction.
- D. A deed in lieu of foreclosure is a voluntary transfer of property to the lender to avoid foreclosure, not an action after an auction.
Deficiency Judgment
A court order that allows a lender to collect the difference between the outstanding loan balance and the proceeds from a foreclosure sale if the sale price is less than the debt.
- Available in Florida when foreclosure sale proceeds are insufficient.
- Lender can pursue other assets of the borrower to satisfy the judgment.
- Not always granted, courts consider fairness and property value.
Memory trick: Deficiency Judgment: When the sale falls short, the court makes 'em pay more.