Divorce, Foreclosure & Property Division

Foreclosures are high in Florida. That's no secret. And while some banks may not be seeking deficiency judgments, the Third District recently reminded us that Florida law allows deficiency judgements. That means divorce judges must take into account foreclosure situations when doing a property distribution in a Florida divorce.

Foreclosure & Deficiency Judgments in Florida

A deficiency judgment results when a creditor (the bank) is not paid the full amount of what is owed. That can happen in a foreclosure or a short sale. In the case from Miami, the wife did not want to go into foreclosure so the court awarded her the condo and its mortgage debt and then divided the rest of the property equally in the property distribution.

Here's what the Third District Court of Appeal had to say in Byrne v Byrne (decided in January 2012):

the trial court justified its decision not to assign half of the condominium's debt to Dan by stating that, although Ava wished to preserve her reputation by preventing foreclosure, "most homeowners in the circumstances of the parties would simply abandon the residence and/or return the keys to the banks holding the indebtedness." The trial court therefore concluded that it would be inequitable to require Dan to pay half of the condominium's negative value solely because Ava desired to protect her own reputation.

The trial court's justification was not "legally sufficient" because it erroneously assumed that the negative value associated with the condominium would simply vanish if the parties were to "abandon the residence" or "return the keys to the banks holding the indebtedness." It is well settled Florida law that, absent contractual agreement, debtors remain liable for the portion of their debt not satisfied in a foreclosure sale. See Webber v. Blanc, 22 So. 655, 656 (Fla. 1897)

Dealing with Negative Equity in Property Distribution

So once again, an unequal distribution was overturned on appeal.That's because the couple had no release from the underlying mortgage debt and could have been sued for the entire outstanding mortgage amount.

Just because one spouse wants to avoid foreclosure, even if it appears to others that it is a losing propsoition, the entire debt and negative equity must be considered by the trial court when dealing with foreclosure and divorce in Florida.

Comments

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