Walking away from Florida mortgage doesn't always clear debt

You think banks are powerless to retaliate if you walk away from your Florida mortgage?

Think again.

Despite dozens of Web sites touting Florida as a prime "walk away" state — mail in the house keys and live debt free — foreclosed homeowners have learned that banks aren't always keen to forgive such debt.

It's true that many Florida mortgage lenders customarily waive mortgage deficiencies — the shortfall between the loan amount and the home's market value after it's repossessed.

During the housing downturn, thousands of Tampa Bay homeowners have defaulted on their home loans without additional assets being touched.

But no Florida law compels lenders to go easy on defaulters. Some homeowners are finding out that housing debt can be like flypaper if they get on a bank's bad side.

In some cases banks have docked homeowners' bank accounts and paychecks for mortgage debt they assumed was forgiven. Others have sold their homes by short sale and amicably parted ways with the bank only to receive letters that the lender would hound them for the shortfall.

"When a short sale closes, the homeowner thinks he's done, moved on with his life, the headache's behind him," said St. Petersburg real estate attorney Matthew Weidner. "Because the payoff letters don't even say a case will be dismissed, the lenders may just keep on going against the homeowner without missing a beat."

Florida is a "recourse" state. That means a lender can hit you for extra payments even after it has seized the house as collateral for the delinquent mortgage. Many Web sites mistakenly label Florida a "nonrecourse" state.

One fact has tended to help Tampa Bay homeowners, however: Florida law leaves much of the discretion up to judges. Strapped homeowners are popularly viewed as victims of the banks, and few judges grant lenders carte blanche to seize assets aside from the home in question.

Tampa real estate lawyer Kristopher Fernandez said that out of dozens of cases he's worked, only two involved banks pursuing debt.

In one case, a community bank garnished a housing investor's bank account each month. Fernandez persuaded a judge to stop the automatic withdrawals. In another case a woman was sued by her private mortgage insurance, or PMI, carrier, after the insurer covered the bank for part of its foreclosure loss.

"Banks are making the decision that most people are walking away not because they want to walk away. They're walking away because they're broke," Fernandez said.

Large Florida lenders didn't return calls about how they decide whether to pursue judgments against homeowners. Florida Attorney General Bill McCollum's office declined to clarify mortgage debt collection rules, recommending instead the Florida Bar, which in turn offered Fernandez.

Florida consumer protection rules discourage, though don't forbid, the pursuit of outstanding mortgage debt after foreclosure. Banks can't garnish a person's pay if he's the primary wage earner. So single-income families are safe in that regard. Few mortgage lenders want to repossess valuables like automobiles or furniture.

If the debt is for an investment home, banks can't confiscate the investor's primary residence in compensation. Banks also must notify a former homeowner personally that they're pursuing old mortgage debt. If a foreclosure victim has left Florida without a forwarding address, delivering a certified letter is problematic.

"There are so many thousands of foreclosures. To spend thousands of dollars to chase assets a person might not have isn't worthwhile," Fernandez said.

Weidner worries that Florida Realtors have been inattentive to legal language in their short-sale contracts. Short sales occur when banks let homes go for less than the mortgage due. Many sales contracts refer to canceling the mortgage but don't insert a clause forcing the bank to waive its right to chase "deficiencies."

"When you take out a mortgage, it's one document, but that's not the only document. The other document is the promissory note," Weidner said.

"When you get the payoff letter from the bank they often say, 'We've cleared the mortgage.' But they are silent on the promissory note. My fear is that because of the silence, you could be hit with demands for payment down the road."

Others have noted the tentative emergence of third-party debt collectors who buy unpaid promissory notes from banks for pennies on the dollar. That allows them to come after homeowners until the family pays up or files bankruptcy. It's been a larger issue with commercial foreclosures, but attorneys fear residential foreclosures could be ripe for plucking.

"Most Realtors don't know about this stuff," Weidner said. "And most homeowners definitely don't. But I suspect it's going to be important."

James Thorner can be reached at jthorner@sptimes.com or (813) 226-3313.