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

Florida Deficiency Proceedings: Establishing the Value of the Property

Posted in Debt and Judgment Collection, Special Assets Litigation

Following a foreclosure sale, a secured creditor may seek a monetary judgment for the deficiency amount that remains owed to it by the borrower. If the creditor was the successful bidder at the foreclosure sale, it has the burden of proving that the fair market value of the property foreclosed upon, as of the date of the foreclosure sale, was less than the total debt owed. Fair market value is defined as the amount that would be paid for the property to a willing seller, not compelled to sell, by a willing buyer, not compelled to buy, considering all reasonable uses to which the property is adapted. The determination of a property’s value may be affected by the foreclosure sale bids, but creditors usually are required to independently prove the value.

A creditor typically engages an appraiser to value the property as of the date of the foreclosure sale. The trial court cannot consider appraisals that are older than the sale date, even by a few days. This is because the only date relevant to the amount of a deficiency judgment is the date of the foreclosure sale. Still, an appraiser may “update” an old appraisal with testimony as to the property’s value. For example, an appraiser can review his older appraisal, investigate the more-current value of the property in accordance with the professional appraiser standards (i.e., Uniform Standards of Professional Appraisal Practice), and testify regarding the value as of the date of the foreclosure sale.

Some creditors have used Broker Price Opinions (BPOs) in an effort to prove the value of the property. There is no legal reason why a BPO could not be used to establish the fair market value for deficiency purposes. The BPO would have to present competent evidence of the fair market value as of the date of the foreclosure sale, and the broker would need to be able to qualify as an expert in determining fair market value. There is no particular qualification required to be an expert, so the broker would just have to be able to show how his or her skills, experience, training, or education qualifying him or her as such. However, some notes of caution to creditors who wish to rely on a BPO to prove the value of property in a deficiency proceeding:

  • Courts have held that where evidence of value was based on asking prices only, it was insufficient for determining fair market value.
  • If the proposed witness is an expert on “property value” in the sense of the credit-worthiness of property rather than “fair market value” of property, that is insufficient to qualify the witness as an expert on the issue of fair market value.
  • A broker is not permitted under the Florida Statutes to refer to a BPO as an “appraisal” (which is defined by statute as services provided under certain appraisal standards), so any affidavit or testimony would want to avoid couching the BPO in those terms.
  • A borrower is free to challenge the qualifications and methodology of the creditor’s expert. If the borrower presents an appraisal, a court may be more persuaded by a formal appraisal rather than a BPO. Trial courts have broad discretion in weighing the opinions of experts as to fair market value.

In addition to valuations of the property, the court may consider the price at which the property was resold after the creditor acquired it as evidence of its fair market value at the time of the foreclosure sale. The Court may also consider the borrower’s opinion as to the value of property.