People's Law Guide
David A. Silverstone Attorney At Law
I consult with a lot of people lately who are faced with the prospect of losing their homes in foreclosure. Many of them have become ‘upside down’ on their mortgages; the balance of their mortgage is greater than the value of the property. People whose mortgages are upside down have no good options. They have to choose from among the lesser of three or four evils, including facing foreclosure, litigating with the lender, trying for a short sale or loan modification. There is no doubt that going into foreclosure can bring up strong emotions, and feels like a crisis. However, it is best to maintain a positive and businesslike outlook. Knowledge of the legal aspects of foreclosure will empower you to take the steps necessary to get through this difficult and often confusing process.
MORTGAGE BASICS: THE NOTE AND THE MORTGAGE
When you buy a house or other property you borrow money from a lender, usually a bank. At the closing, you sign a document called a Mortgage, and another one called a Note (also known as “promissory note”). The Note is a written promise to repay the lender and the Mortgage is an agreement that if you don’t make your payment, the lender can take the property from you.
THE FORECLOSURE PROCESS
If you don’t make your payments, the bank cannot just kick you out of your house. They have to file a foreclosure action. A foreclosure action is a civil lawsuit.
The foreclosure action is begun by the lender filing a Complaint. A Complaint is a paper which essentially states that you broke your promise to pay the Note and Mortgage, and requests that the property be sold at foreclosure sale.
You must be served with the Complaint. In Florida, service is accomplished by a sheriff or process server handing you a copy of the Complaint and a Summons. A Summons is a paper which requires you to file a written response to the Complaint within 20 days. The Summons cautions that if you do not respond, a foreclosure judgment may be entered against you without further notice.
Filing a Response
Filing a response, called an “Answer” within the 20 day time limit keeps you from having a judgment automatically entered against you. By filing a response you will receive notices of all hearings and court proceedings in the foreclosure action, including copies of all papers filed by the lender’s attorney. The purpose of this is not necessarily to defend the lawsuit, but to make sure the court and attorney know that you are participating in the lawsuit. If you wish to actively fight the foreclosure you should see an attorney. A copy must be mailed to the lawyer, and the original mailed to the Clerk of Court. The mere filing of an Answer adds time to the foreclosure process. This additional time can work to your advantage. Perhaps you need to stay in the property a bit longer for financial or other reasons. Perhaps you are trying to sell the property. You may need the time to negotiate a short sale or modification.
Another reason to file a response is that you may have defenses to the foreclosure action. A “defense” means that you have valid legal grounds to fight or object to the foreclosure. These defenses must be stated in the Answer. If they are not raised at this time, you may find later that you have waived them, or at least that it is much more difficult to raise them.
Motion to Dismiss
A motion to dismiss points out technical errors in the Complaint. A common technical error lenders make is failure to attach a copy of the Note and Mortgage to the Complaint. Another common error is that the lender named in the Complaint is not the original lender with whom the mortgage was signed. Most technical deficiencies can be corrected eventually, but this will purchase additional time.
Counterclaims: Suing Back
You may have grounds not only to defend the foreclosure, but actually “sue them back” in a counterclaim. If you can show the lender engaged in predatory lending, fraud, Truth in Lending violations, or other illegal conduct, you may be in a position to file a counterclaim. If lender wrongdoing can be shown, the lender could wind up losing its right to collect on the mortgage. If you believe that you have grounds to file a counterclaim because the lender engaged in some type of serious misconduct, then you should bring it to an attorney. The attorney will evaluate your case and weigh the costs and benefits of undertaking this type of litigation. Be aware that the Summons only gives you 20 days to respond, and you therefore need to go to an attorney quickly.
The Motion for Summary Judgment
The MSJ is a paper filed by the lender, asking for a quick judgment without a trial. The MSJ must be presented to the judge at a court hearing. If you filed a response, you must receive a notice for the Summary Judgment Hearing in the mail.
The Summary Judgment Hearing
At the hearing, the judge will ask both sides to state their positions. The judge may ask you some questions, but genrally if the lender’s paperwork is in order, he will sign the foreclosure judgment. The reason judgment can be entered just by looking at the MSJ paperwork is that once the lender has shown the judge proof that you have not paid your mortgage, there is nothing more to prove. Unless you have some defense or counterclaim which would justify or excuse your nonpayment, the lender will win the MSJ, and the judgment will be signed. This is not to say that a foreclosure cannot be successfully challenged, but in most foreclosures the lender will “win” its case at the summary judgment hearing.
The Final Judgement of Foreclosure
The judgment which the judge signs carries two important pieces of information. The first one is the judgment amount. The judgment amount is the total of all money owed by you to the lender, including the principal balance of the mortgage, interest, penalties, late fees, attorneys fees, title search fees, etc… The judgment amount is the amount that the property will have to sell for to fully pay off the lender.
The other important information is the foreclosure sale date. In Florida the foreclosure sale must be held within 35 days. Judges however may, under certain circumstances, allow some extra time beyond the 35 days. If you need extra time, you should request it at the MSJ hearing.
The Foreclosure Sale
The foreclosure sale is an auction where the public is invited to place bids on your property. Prior to the foreclosure crisis, bidders would show up at these auctions. Now that most properties are upside down, there is little or no bidding at the foreclosure sales. As high bidder, the lender ends up owning the property. If you have not vacated the property by ten days after the sale date, the lender can evict you from the premises in fairly short order.
HOW LONG DOES FORECLOSURE TAKE? (times are estimated)The foreclosure action will be served on you approximately 90 days after your first missed payment. You have 20 days to file a response. After the response is filed, it takes approximately 45 days before a Summary Judgment Hearing takes place. You then have 35 days until the foreclosure sale. The total time you have after your first missed payment is approximately 185 days. The actual time may be longer, depending on how many foreclosures the lender is handling, and whether you file a motion to dismiss, or raise defenses.
WILL THE LENDER BE ABLE TO COME AFTER MY ASSETS BY MEANS OF A DEFICIENCY JUDGMENT?
The Deficiency JudgmentOnce the lender is the high bidder at the foreclosure sale, and owns the property, the lender will list the property for sale. Because the property is upside down, the price it sells for will be less than the amount of the judgment. This creates a loss, or “deficiency” as it is called in our Florida Statutes. The amount of the “deficiency” is, under Florida law, the difference between the judgment amount and the fair market value of the property. For example if the judgment amount is $300,000.00, the fair market value of the property is $210,000.00, and the lender sells it for $200,000.00, there is a deficiency of $90,000.00.
Taking Your AssetsThe deficiency judgment gives the lender the right to collect money from your general assets. A deficiency judgment holder has the right to “attach” “levy” or “garnish” your assets in order to get the money that is owed under the judgment. The judgment holder can garnish your bank accounts and wages. The judgment holder can force you to surrender your assets, including real estate, automobiles, stocks, and business interests you own.
Florida Asset Protections
There are many asset protections built into Florida law, which has given Florida a reputation as a “debtor’s paradise”.
Under Florida’ s homestead law a principal residence is protected from money judgments. If you are a head of household, your wages are protected under Florida law. Retirement accounts, annuities and pensions are also protected assets in Florida. If you are a resident of another state, and had property foreclosed in Florida, you should consult with an attorney in your to see what asset protections exist under the law of that state.
What is the likelihood of a Deficiency Judgment?
So far, few lenders have exercised the right to pursue a deficiency judgment. Lenders currently have their hands full with the sheer volume of foreclosures. It can be assumed that many lenders have not yet decided what their policy will be with regard to deficiency judgments. However, they have a four year period in which to decide, measured from the date they sell the property.
There are some good reasons why lenders may not pursue deficiency judgments. The lender has already receives a significant part of its money when it sells the property. Most homeowners
would have few assets left after losing their home, would not be worth pursuing. To get a deficiency judgment, the lender must return to court in a separate proceeding, and incur additional attorneys fees and court costs. Lenders may consider it bad public policy to file additional legal actions against thousands of homeowners who are already hurting from the loss of their home, and whatever money they invested in it.
Some lenders may decide on a case by case basis whether to pursue a deficiency judgment. In other words, the lender may make a determination as to what assets the former property owners, and pursue the “haves” and leave the “have nots” alone. The risk of a deficiency judgment has harsher potential consequences for people with significant assets.
IS A SHORT SALE AN OPTION WORTH PURSUING?
A short sale is when the lender allows a homeowner to sell a property for less than the mortgage payoff. For example if your property is worth $120,000.00, and the amount of the mortgage is $200,000.00, a bank may agree to let you sell the property for $120,000.00 on a short sale. The bank would be agreeing to take less than the full amount of the mortgage. Why would they agree to do this? Because a foreclosure takes time and money, and in the end the bank will wind up selling the property “short” anyway. In order to do a short sale, it is best to contact the loss mitigation department of your bank, and to use an attorney to negotiate the short sale with the lender.
Do Short Sales Always Work?
No. It only works if a buyer is found and approved by the lender. There are a lot of properties for sale, and few buyers. These buyers are looking for below-market bargains, and the lenders want to recoup as much of the mortgage amount as possible. The lender is not there to do you any favors and they may be relatively inflexible on their bottom line price.
A short sale is made more difficult if the home has a second mortgage. The first mortgage holder may agree to the short sale, but the second mortgage holder would have no motivation to release the second mortgage unless they got paid something as well.
You Will Have to Reveal Your Assets
Lenders require full financial disclosure as part of the short sale process. If the short sale attempt is unsuccessful, and there is a foreclosure, the lender now knows exactly what your assets are. Some people who own non-exempt assets, would rather take their chances on a foreclosure, rather than reveal what their assets are. The bottom line on short sales: A short sale is at least worth trying, because, if successful, it could be preferable to foreclosure. It is recommended that you have a real estate attorney assist you in negotiating a short sale, in order that the arrangement with the lender is as fair as possible to you.
IS A LOAN MODIFICATION AN OPTION WORTH PURSUING?
A loan modification is when a lender changes one or more terms of the mortgage. The goal is to lower your payment to one you can afford. The lender may lower your interest rate, change the rate from adjustable to fixed, increase the amount of years to pay off the mortgage, and may actually decrease the principal balance owed on the loan.
The financial disclosure requirements are similar to those in a short sale. Lenders typically take four months or more to determine whether they will modify your loan. Eventually the lender will come to you with modified loan terms. Sometimes you will be able to negotiate the modification proposal to more favorable ones. Using an attorney for those negotiations can help you do this.
The bottom line on loan modification is that it is worth trying, but it will take the lender a long time to get back to you, and the plan the lender comes up with may still not be one you can afford.
Finally, you should be very careful of companies which advertise that they will negotiate the modification for you. Some of these companies are fraudulent, and their goal is merely to part you from your money.
An attorney knowledgeable in foreclosures and foreclosure defense can assist you in all aspects of dealing with foreclosure, including responding or defending to foreclosure actions, filing a counterclaim, negotiating with the lender, or just answering questions.
David A. Silverstone is a civil litigation, real estate and probate attorney. His office is located at: 2500 Hollywood Blvd., Suite 206, Hollywood, Florida 33020. For consultation, contact the law office of David A. Silverstone, P.A. (954) 367-0770, or send an email to email@example.com