Thousands of former Florida homeowners are facing collections of unpaid mortgage debt from foreclosures that took place years ago, but a Jacksonville-based law firm hopes to block some of the actions with a lawsuit it filed last week in federal court.
A deadline change in state law triggered a mass filing this year of so-called deficiency judgment claims against defaulted borrowers, including at least 110 lawsuits in Palm Beach County since June 1.
The problem, in attorney Chip Parker’s estimation, is that the claims violate the Fair Debt Collection Practices Act in cases where the suit is filed in Florida, but the borrower has since moved to another state. Parker is seeking class action status in the Middle District of Florida on behalf of Massachusetts resident Richard Simpson, who lost a Jacksonville home to foreclosure in 2009.
Simpson was sued for a $26,651 deficiency in February, but many claims are for amounts well above that — typically the difference between what the home is sold for at auction and the remaining mortgage debt.
“The scheme is to sue all these out-of-state defendants who have just 20 days to respond, and then get a default judgment when they don’t respond on time,” Parker said. “Then they can send that judgment to a collection attorney wherever the borrower is living.”
Parker said his research has found about 10,000 deficiency judgment claims filed in Florida.
Until now, deficiency judgments were so rarely sought that many homeowners gambled the banks would never come after them — walking away from homes they could afford but that were so underwater the investment no longer made sense.
Others had no idea what lurked years down the road, thinking that losing the house was the worst that could happen.
“A lot of homeowners are completely taken by surprise,” said foreclosure defense attorney Mike Wasylik. “Many homeowners didn’t know the banks had the right to do this.”
A change in Florida law that went into effect July 1, 2013, reduced the timeline that banks and mortgage companies have to file for a deficiency judgment from five years to one year after a foreclosure is final, which is when the home is sold at auction. That meant cases that weren’t already timed out had just one more year to file.
The cases are being filed by a Texas-based company named Dyck O’Neal, which is represented by the Law Offices of Daniel C. Consuegra in Tampa. Dyck O’Neal is collecting on behalf of federal mortgage backer Fannie Mae, which wants to recoup losses.
Neither Dyke O’Neal or the Law Offices of Daniel Consuegra returned requests for comments Monday.
Parker isn’t alone in believing homeowners can defend against the deficiency claims. Both Wasylik and South Florida real estate attorney Roy Oppenheim said there are questions about whether the suits are being filed by the appropriate party and if required notice is being given.
Parker said instead of filing a whole new lawsuit, the deficiency should probably have been sought through reopening the old foreclosure case. He believes Dyck O’Neal didn’t want to do that because then the original foreclosure could be challenged.
“I think they wanted to avoid that all together,” Parker said. “The problem is, it’s the wrong way of doing it.”