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Law Pro
Law Pro, Attorney
Category: Legal
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Experience:  20 years legal practitioner: real estate, collections, estate, civil, business, and criminal law
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What is the statue of limitations any mortgage lender has to

Resolved Question:

What is the statue of limitations any mortgage lender has to collect on a foreclosure, Deed in leu of Foreclosure and the difficiency amount on a short sale?
Submitted: 7 years ago.
Category: Legal
Expert:  Law Pro replied 7 years ago.
In neither of those can a lender pursue against the original borrower - in both situations the lender has to agree to them and therefore waives their right to pursue a deficiency in the matter.

What happened here? What state are you in?
Customer: replied 7 years ago.
I am in the State of Florida. I am presently assisting some people with short sales (sp. Most of the homes are upside down in todays market, so they are worth less than what the original mortgage. So if the payout for a home is $200K and it short saled at $100K. The realtor states that the bank can still come after the original borrower for the deficiency. Like wise with a Deed in Lieu of Foreclosure, Foreclosure. We have been told that their is no Statue of limitations on this. I have called the IRS, State Attorney's Office, and everywhere else they have sent me. Every other debt or legal action has a status of limitations, why not the Mortgage holders. I really need to know so these people can decided what would be in there best interest.
Expert:  Law Pro replied 7 years ago.
Here is what the law is:

In Florida, all mortgages are foreclosed in equity. In a mortgage foreclosure action, the court severs, for separate trial, all counterclaims against the foreclosing lender. The foreclosure claim shall, if tried, be tried to the court without a jury.

The court order of foreclosure will specify how the foreclosure must take place, and the foreclosure must take place on those terms. Whenever a legal advertisement, publication, or notice relating to a foreclosure proceeding is required to be placed in a newspaper, it is the responsibility of the lender or their representative to place such advertisement, publication, or notice.

Equitable Right of Redemption ends at the foreclosure sale (or at another time specified by the courts, but this rarely happens). There is a period of time after the sale that "the court reviews the sale to ensure a fair price has been paid." Basically, this period of time allows parties to object to the sale on the basis that proper procedures were not followed or collusion existed between the bidders, for example. This period is usually 10 days, after which the Certificate of Sale is filed and title passes, if the sale is confirmed. If the sale is not confirmed, another sale is ordered. (Reference F.S. Chapter 702)

The lender may sue to obtain a deficiency judgment in Florida.


Florida foreclosure law states that the homeowner has the right to redeem the property anytime before the day of the sale. After the Certificate of Sale has been issued, there is no right of redemption.

In a short sale, the lender allows the house to be sold for less than the mortgage balance. The borrower avoids a deficiency judgment. The lenders would rather get most of their mortgage through a sale arranged by the owner then take the property back at a foreclosure sale. Borrower should beware of short sales.


The problem for the borrower in a short sale is that the difference between the payment to the mortgage company and the full mortgage balance is a forgiveness of debt for tax purposes. The mortgage company is forgiving the debtor’s liability for the deficiency. The IRS considers forgiven debt to be taxable income to the borrower. The mortgage lender may send the borrower a Form 1099 for the amount of the deficiency. Most borrowers who cannot afford mortgage payments can even less afford additional tax liability. Owing money to the IRS is usually worse than owing money to a mortgage lender. Many mortgage lenders will not pursue debtors for deficiency judgments; the IRS will always pursue unpaid taxes. For that reason, most borrowers will fare better by letting their property go to foreclosure, even if the foreclosure may result in a deficiency liability.


Basically, Deed in Lieu is similar to a voluntary repossession. You are signing over the deed or “title" to your property and the lender agrees to cancel the mortgage. In other words, the typical deed in lieu of foreclosure is a consensual transaction – you have complied with a long list of requirements placed upon you by the lender, they have evaluated your facts and circumstances and, after great deliberation, a long time and a little bit of luck, they agree to take back the real estate instead o suing you! Typically the lender draws up the Deed in Lieu of Foreclosure Agreement which must be signed by the grantor / homeowner, witnessed by two people and notarized. Upon execution, the deed in lieu must then be delivered to the grantee / lender. The deed is also typically recorded at the local clerk of court in the public records.


The process, however, isn't as always as clean-cut as it may appear. For instance, the lender typically reserves the right to seek a deficiency judgment against you, the borrower / homeowner. Once the lender takes possession, the property (i.e., REO) will be put up for sale. Unless otherwise stipulated in the Deed in Lieu of Foreclosure agreement, the lender may come after you for the unpaid debt.


Specifics Requirements. Generally speaking, there are certain guidelines that must be followed before the lender will consider the Deed in Lieu. It should be noted prior to engaging in a consensual deed in lieu that they are not “easy” and as a general rule, fail more times than they succeed. They are:

  • The borrower must have suffered a hardship such as loss of job, sickness, dissolution of marriage, etc;
  • The property is generally an individual’s former homestead; the Deed in Lieu of Foreclosure is generally not for abandoned properties or investment properties;
  • The borrower must have exhausted other options / financial resources;
  • The property must have been on the market between 90 and 180 days;
  • There cannot be any other liens on the property;

The property must be left in clean condition and sometimes the lender requires an inventory & a statement of condition;

Income Tax Consequences. There are income tax consequences to consider with the Deed in Lieu of Foreclosure. The IRS often gets involved with Deed in Lieus, because the deficiency that results from the ultimate sale is typically forgiven. In such case, this forgiveness is seen as a relief of debt and may be treated as income. Please consult with your with your accountant or tax advisor for specific details.


NOTE: On December 20, 2007, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which will help Americans avoid foreclosure by protecting families from higher taxes typically assessed from the forgiveness of indebtedness. This Act will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed.

BENEFIT: This Act will increase the incentive for borrowers and lenders to work together to refinance loans and allow American families to secure lower mortgage payments without facing higher taxes.


So, I'm not sure what your talking about as to statute of limitations - the lender files a deficiency judgment if there is one (when other than a short-sale or deed-in-lieu is done because there isn't a deficiency when those are accepted by a lender) and then they can pursue such a judgment like any other judgment and keep reviving until they do collect.

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