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Florida homeowners facing foreclosure may be stuck with debt

Recently, a man who owned a Florida vacation home in Lee County lost his home to foreclosure because he was unable to make his mortgage payments due to unemployment. It was a difficult situation, and one that he had hoped was behind him after the foreclosure and repossession of his property.

Those hopes were dashed when he recently received a notice of a deficiency judgment against him in the amount of nearly $200,000 -- the loss his bank took when it sold the foreclosed property for less than what he owned.

As the 39-year-old remains unemployed, he simply does not have the capability to pay off the deficiency judgment. He is now considering filing for bankruptcy protection -- something he should have considered when his vacation home first went into foreclosure. While the protections available in bankruptcy are somewhat different for vacation property than for the home you live in, talking to a bankruptcy attorney before foreclosure can provide valuable information to people in either situation.

Unfortunately, this is not an isolated story in Florida. Our state is one of many that allows banks to file deficiency judgments against homeowners when the sale of the foreclosed home doesn't cover the entire amount of the remaining debt on the mortgage plus the bank's foreclosure fees and costs. Yes, if the bank loses money on a foreclosure -- including what it costs them to foreclose -- they can sue you.

In Lee County, alone 172 deficiency judgments have been entered this year, which is a 34 percent increase from 2010. Due in large part to the volume of so-called "underwater" mortgages, where the homeowner owes more on the mortgage than the property is worth, deficiencies are very common in this economy. The number of foreclosed homes where the bank is left with an average of $100,000 in unpaid debt after the foreclosure sale has increased, and banks are more likely to file suit in these cases.

Florida homeowners who are in this situation should meet with someone who understands foreclosures, short sales, deeds in lieu of foreclosure, bankruptcy protection and other options for dealing with mortgage debt, along with the potential benefits and challenges of each. Even if you don't file for bankruptcy, having this information before you make a decision can be vital.

Mortgage modifications and debt consolidation are two potential options for Florida homeowners who are trying to deal with overwhelming mortgage debt. Depending on your situation, bankruptcy can halt the foreclosure process and may allow you to keep your home. After foreclosure, bankruptcy can wipe out a deficiency judgment against you, in the vast majority of cases.

Be sure to know your legal rights and potential liabilities before you make a decision about how to deal with a foreclosure threat. It can keep you from having to deal with unpleasant surprises later.

Source: The Wall Street Journal, "House Is Gone but Debt Lives On," Jessica Silver-Greenberg, Oct. 1, 2011

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