Foreclosure Defense Q & A
What happens when I receive a demand letter from my lender?
A demand or acceleration letter is sent by the lender when borrowers have defaulted on their loan agreement. The lender will send this letter to the borrowers in order to proceed with a foreclosure action for the entire amount of the loan. However, if the lender accepts a payment after sending the acceleration letter, the lender must send another acceleration letter in order to proceed with the foreclosure action. Upon receiving an acceleration letter, borrowers should contact an attorney immediately to protect their rights.
Do borrowers have a better chance of keeping their homes if they contact a lawyer before a foreclosure action is filed?
Absolutely, due to the current state of our economy, and the real estate market, lenders are more likely to provide loan modifications and workouts to qualified homeowners before hiring an attorney to institute a foreclosure action.
How long do borrowers have to answer a foreclosure complaint?
Florida law makes clear that borrowers have 20 days to answer a foreclosure complaint. If borrowers are past the time permitted to answer a foreclosure complaint, they still have other options. Contact a lawyer right away to protect your rights.
What is a deed in lieu of foreclosure?
Occasionally, the lender will accept a deed in lieu of foreclosure if there are no other liens on the property. Deed-in-lieu is a process where borrowers that fail to satisfy their loan obligations sign over their property to the lender. The lender may then sell the property in order to retrieve a part or whole of the amount borrowed from the sale proceeds. The main advantage to borrowers is that it immediately releases them from all of the personal indebtedness associated with the defaulted loan. It is important for borrowers to retain an attorney to proceed with a deed in lieu of foreclosure in order to avoid legal and tax consequences.
What is a deficiency judgment? How can we avoid a deficiency judgment?
A deficiency judgment is a judgment lien against a borrower whose foreclosure sale of property did not produce sufficient funds to pay the mortgage in full. The lender has legal recourse to sue borrower for the difference between the mortgage debt (amount owed) and the proceeds of the sale. That is why it is very important to retain a lawyer to proceed with a waiver of deficiency judgment in order to avoid legal and tax consequences.
What is the Mortgage Foreclosure Debt Relief Act?
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 in response to the overwhelming increase of foreclosures in the United States. Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence. What does that mean? Usually, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude certain cancelled debt on your principal residence from income
What is a modification?
A modification is a change to the original mortgage terms and conditions. It may include a change to the product (an adjustable rate mortage to a fixed rate mortgage), interest rate, amortization term and maturity date, and/or unpaid principal balance. The changes are made to create a more affordable payment for the borrower.
What is a streamline modification?
A streamline modification is a modification that requires less documentation and less processing. In this case, the streamlined modification seeks to create a monthly mortgage payment that is sustainable for troubled borrowers by targeting a benchmark ratio of housing payment to monthly gross household income.
What is a benchmark ratio?
This the first time the lending industry has agreed on an industry standard. The benchmark ratio for calculating the affordable payment is 38 percent of monthly gross household income. Once the affordable payment is determined, there are several steps the lender can take to create that payment. The lender can extend the term, reduce the rate, and/or forebear interest.
Who is eligible for a modification?
Standards vary among Lenders. However, most Lenders follow general guidelines. High risk borrowers that have missed three payments or more, that own and occupy the property as a primary residence, that have not filed bankruptcy, are also eligible. To qualify for the streamlined modification, borrowers must certify they experienced a financial hardship/change due to loss of employment, medical problems, etc…and did not purposely default to obtain a modification.
What is HOPE NOW?
HOPE NOW has the lending servicers as members. HOPE NOW collaborated with Fannie Mae, Freddie Mac and FHFA on arriving at a standard that is consistent and addresses the capacity challenge for servicers dealing with increased delinquencies. For more information visit www.hopenow.com
How are Florida Mortgages Foreclosed?
The primary method of foreclosure in Florida is the result of a law suit filed by the lender against the owner of the property. If the owner does not file an Answer to the suit or another pleading within 20 days of receipt of the suit, the lender can get a Default Judgment against the homeowner and proceed with the foreclosure and eventual sale of the property.
How Long Does it Take to Foreclose on a Property in Florida?
Depending on the timing of the various required notices, it usually takes a minimum of 90 days to effectuate an uncontested foreclosure. However, these days, we are seeing it anywhere from 90 days to over 15 months with some lenders due to the backlog. This process may be further delayed if the borrower contests the action in court, seeks delays and adjournments of sales, or files for bankruptcy.
Are Deficiency Judgments or Short Sales Permitted in Florida?
Yes. Lenders have legal recourse to sue borrower for amount owed after deducting proceeds from sale of property. Lenders are willing to negotiate short sales with third parties to avoid costly litigation, to avoid auction sales, and to get the money sooner rather than later. Borrowers should retain an attorney to negotiate a short sale of their property, or to reach some other type of agreement.
How Can I Stop A Foreclosure?
By hiring an attorney to provide you foreclosure alternatives that will best fit your needs. If Lender refuses to negotiate, then you need an attorney who will go to court to fight the foreclosure, to get you current again and help you with your situation. Doing nothing does not stop a foreclosure, but waiting too long and doing nothing can affect your chances of negotiating a favorable settlement.
After Foreclose Sale, Can My Lenders Come After Me For The Loss?
Yes. However, it depends on the situation and the facts. It’s very important that you work with an experienced attorney who can help you avoid a deficiency judgment. You need to retain a lawyer who not only is experienced in negotiating work-out agreements, but who also knows the laws and rules regarding foreclosure and deficiency judgments.
Can I Just Deed My Property To Someone And Avoid Foreclosure?
Transferring the Deed of your property to a third party does not eliminate your obligations related to the loan. Unless the mortgage is paid off when you deed the property, you will remain responsible for the repayment of the loan. If the lender eventually forecloses, you will be vulnerable to a deficiency judgment entered against you for any monetary loss suffered by the lender, and it will be on your credit record. If you deed your property to a third party you also give up control of the property. It is nearly always a bad idea to simply deed your property to a third party. Do not deed your property to someone without paying off the loan unless you have consulted with an attorney.
What Will a Foreclosure do to my Credit?
A foreclosure will remain on your credit report for seven years. It will negatively impact your ability to borrow money for many years. However, short sales, and deed-in-lieu of foreclosures are much less damaging. For most people, it is well worth the time, effort and money to work with an attorney to help them avoid foreclosure.
What does a Default Mean?
If a Default has been recorded against the borrower, it means the Lender has completed the formal foreclosure suit process, and will be getting ready to acquire the property and offer it for sale. In Florida, a borrower usually must be a couple of months delinquent before a lender will commence a foreclosure action by filing a law suit. It is important for borrowers to act quickly to avoid losing the property and having a foreclosure on their record.
I Have Heard Of Foreclosure Scams, What Should I Look For?
Unfortunately there are quite a few people that might try and take advantage of your temporary misfortune. These people will try and convince you that they can provide a quick and easy solution to your mortgage problem. As a general rule, if it seems too good to be true, it usually is.
Here are a few examples of the scams you could encounter:
"You need to sell your property fast or you will be ruined." If you have equity, these scam artists want it. By promising to provide fast cash they solve your problem and they get your equity. On occasion they offer a small amount of money to you – which is normally a signal they are getting lots of your equity.
"Sign the deed to the property to us and we will take care of everything." Sometimes called the “Bailout” scam, the investor tells the homeowner that he will be allowed to stay in the home and pay “rent” to the investor until a long term solution can be worked out. Once the owner signs the deed to the property over to the investor, big trouble usually follows. If the investor has the deed, the investor has control. Here is the big kicker – the homeowner who signed over the deed is still responsible for the loan. The investor nearly never makes the mortgage payments and the homeowner gets hit with the foreclosure.
Consumer Alert: Many people are using real estate agents/brokers these days to negotiate their short sales, however we do not recommend using a real estate agent for anything other than the primary purpose of marketing and selling their home. Real estate agents/brokers are not attorneys, and most of them are unfamiliar with the complex rules and laws surrounding mortgages and the foreclosure process. In addition, agents are concerned with their bottom line (their commission), which is obtained by getting the house sold and we have seen it many times where the agent will get the home sold, but then later the homeowner is pursued for a deficiency judgment, 1099, etc. This is because the real estate agent either didn’t know, or didn’t care to negotiate these critical components as they were only concerned with selling the home to get their commission. We include deficiency judgment, 1099 issuance and credit reporting for every one of our short sale or deed in lieu of foreclosures.
We have also heard of realtor’s attempting loan modifications, charging an up front fee, “failing” to get a loan modification, and then convincing the homeowner that their only chance now is to do a short sale. The realtor then charges another up-front fee, plus the commission they get from the sale of the home. In addition, we have seen realtors charging excessive commissions and placing homeowners in extremely long contracts. We advise our clients to never enter into a contract to sell the home with a real estate agent for longer than 90 days. In addition, lenders have a maximum set amount they will pay a realtor, and they will not cover any additional “fees” in a short sale. These amounts typically range from 4%-6% maximum for commission with no tolerance for additional “escrow” etc fees that realtors will try to tack on.
Will A Short Sale Stop A Foreclosure?
While the Short Sale itself does not stop the foreclosure, lenders will normally work with third parties to delay the foreclosure if they receive a legitimate Short Sale proposal.
If My Lender Has Started A Foreclosure, Can I Still Sell My Property?
Yes, lenders would rather have the borrower sell the property than allow the foreclosure to continue. Lenders do not want to take a borrower’s property through foreclosure. Even if the property has no equity, the lender wants to find a solution. This is precisely why lenders agree to a Short Sale and accept a discounted payoff to fully satisfy the loan. In a Short Sale, the lender in nearly all cases pays all the closing costs – including title fees, escrow fees and the real estate commission.
Should I answer my Lender’s calls?
It is best that you not avoid calls or letters from your mortgage company, particularly if a foreclosure is pending. If you are being represented by an attorney, you need to give them the lawyer’s contact information. Please be aware that the people who call from your lender are from the collection department, and not the work-out departments. Therefore they have very little documentation on your file.