A foreclosure deficiency is the amount you legally owe to the creditor after the property is foreclosed upon by the creditor. If a car is repossessed, the creditor takes it back then sells it on auction (same as foreclosure). The auction sale produces an amount of sale proceeds that is normally less than the balance owed on the car loan. After deducting the sales proceeds from the balance owed on the car loan, the resultant amount is the repossession deficiency. For example, you fail to pay last month’s payment on your 2014 MB-350. You still owe $45,000 on the car loan. Last night, your car disappeared from your driveway. You report to the police that your car was stolen. The police check their records and inform you that your car was repossessed. The bank sells the car at auction and gets net sales proceeds of $30,000. Right after the car is sold, bank sends you a collection letter for the difference of $15,000 which is the repo deficiency. Are you legally liable for the $15,000 to the bank even if the car is no longer in your possession? Of course you are. By contract, you owe $45,000. When you defaulted, creditor had the right to get the car back and sell it. If the sales proceeds are not enough to pay off the balance of the contract, you are still on the hook for the difference.

In the case of a house, the foreclosure deficiency will arise if there is a deficiency judgment on foreclosure. State law controls this matter. In Florida, all foreclosures are judicial. This means creditor must file a lawsuit to foreclose the house and to conduct an auction sale on foreclosure. Since there is a lawsuit, there must be a trial. At trial, creditor will ask for a deficiency judgment which the court will grant. So, if you have a rental property in Florida that is being foreclosed, you will most certainly owe a foreclosure deficiency. For instance, you owe $200,000 on the first mortgage. The foreclosure sale yields net sale proceeds of $120,000. You will owe a foreclosure deficiency of $80,000 even if you no longer own the house. Creditor will eventually send you a collection letter demanding the immediate payment of $80,000. I know it’s not fair because you don’t have the house anymore but you still owe $80,000! But as you know by now, life is never fair because there is no natural or divine law that requires life to be fair. You can be a perfectly normal college kid minding your own business but having the very bad luck of crossing paths with Elliot Rodgers AKA the “kissless virgin” near Santa Barbara a few days ago.

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