Second Mortgage Lender More Likely To Pursue Deficiency Judgment

I have often written about mortgage deficiency judgments pointing out that up to now few institutional mortgage lenders are pursuing deficiencies in Florida. Borrowers should distinguish between personal liability on first and second mortgages. When either the first or second mortgage holder forecloses the first mortgage will likely take back the property. The first mortgages gets land which eventually can be sold. The second mortgage holder gets nothing at the foreclosure sale. If the first mortgage holder pursues a deficiency judgment (and again, this is usually not the case), the borrow can defend the action in part by arguing that the mortgagee has been satisfied by its repossession of the property. The borrower does not have this defense against the second mortgage. The second mortgage, having received nothing of value in a foreclosure, can sue on the mortgage note. The second mortgage can simply demand repayment of the promissory note underlying the mortgage without going through a foreclosure proceeding. The property value is irrelevant when the lender sues to collect the note.

I have not seen any case to date where a first or a second mortgage lender has sued the homeowner personally. I think the risk of personal liability is significantly higher when there are more than one mortgage obligations. It is also more likely that a second mortgage lender who does not foreclose can wait up to five years to bring suit on the underlying note after the first mortgage lender’s foreclosure action is complete.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida