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Florida Banking Law Blog Legal developments impacting banking, finance and loan enforcement in Florida

Florida Deficiency Proceedings: Effect of Bids at the Foreclosure Sale

Posted in Debt and Judgment Collection, Special Assets Litigation

During a deficiency proceeding, once a creditor introduces the foreclosure sale price, the borrower technically has the burden of presenting evidence to establish the fair market value of the property. In the absence of such evidence, the trial court has the power to act upon the assumption that the sale price reflects the fair market value. That being said, an inadequate sales price (e.g., the typical $100 successful bid from the creditor) can be asserted as an equitable defense and the trial judge has the discretion and duty to inquire into the reasonable and fair market value of the property sold. Practically, then, a creditor wishing to pursue a deficiency judgment should plan to present evidence of the value of the property as of the date of the foreclosure sale, typically through the use of an appraiser’s testimony.

A creditor should be cautious when developing its maximum bid and crafting its bidding instructions (i.e., instructions given to its attorneys or other representatives who bid on its behalf at the sale). If the successful bid at the foreclosure sale ends up being equal to the amount of the adjudicated debt, the creditor can only recover a deficiency for any remaining amounts for which it is entitled to pursuant to the foreclosure judgment (e.g., sale fees). In other words, there will be virtually no deficiency. Although the amount for which mortgaged property sells at a foreclosure sale is not conclusive as to the value of the property, the deficiency may not exceed the difference between the amount for which the property was sold and the amount of the indebtedness indicated in the foreclosure judgment.

Another consideration for a creditor is whether or not to disclose its maximum bid amount at the sale. If it chooses to disclose its bid during the sale, it will discourage third-party bidders from bidding unless they intend to bid above the creditor’s maximum bid. There will be a greater likelihood that the creditor will be the successful bidder with the nominal bid of $100. This would make the documentary stamp taxes owed on the transfer of title insignificant.

Conversely, if the creditor did not disclose its maximum bid, competitive bidding might have caused the creditor’s ultimate successful bid to be higher, thus increasing the amount of documentary stamp taxes owed. Still, some creditors choose to hide their maximum bids in order to avoid claims (however untenable) by the borrowers or the guarantors during the deficiency proceeding based on the creditor’s maximum bid. These competing concerns (i.e., documentary stamp taxes vs. potential claims) make the decision regarding whether to disclose the maximum bid one that should be approached case-by-case.