"Robert G. Lowe, PL" and rgllaw® are trademarks for legal services.
This site was last updated August 2011.
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Robert G Lowe, PL
Attorney and Counselor at Law
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PO Box 16626
Clearwater, Florida 33766
Phone: 727.647.3700
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FORECLOSURE FAQ |
For personalized answers to your specific situation please contact Bob by e-mail or by phone at 727-647-3700. |
| What if I receive notice of foreclosure? Foreclosure is a civil action initiated by a lender filing a "Complaint". Borrowers will receive notice of the Complaint either by being "served" or personally handed a copy of the complaint or the borrower will be presumed to take notice of a copy of the Complaint physically attached to the real property which is the subject of the Complaint. In some instances borrowers may even be mailed a copy of the complaint. Regardless of the manner in which borrowers receive notice of the legal action it is important to understand that you have very little time with which to respond to the Complaint. Failing to respond or file an Answer may foreclose your opportunity to assert what ever legal excuses or defenses you might have to forestall or cancel the foreclosure action. Regardless of the manner in which borrowers receive notice of the legal action it is important to understand that there is very little time with which to answer the Complaint. Failing to answer the Complaint may expedite the legal process in favor of the lender and may foreclose the borrower´s opportunity to assert the legal excuses or defenses that might forestall or cancel further proceedings. If you do not know how to proceed, it is important to contact a lawyer or legal aid as soon as possible. top |
| What are my options if I get behind on my mortgage payments? First you need to understand and assess your situation with respect to the possible options you might have based upon the equity in your home, market conditions, your ability to repay your loan and the degree to which your lender is willing to work with you to avoid foreclosure. Before the current rise in the number of foreclosures lenders generally would not speak to borrowers about alternatives to their mortgages until the borrower evidenced some type of hardship typically by missing a couple of payments. And if lenders did agree to consider and or offer alternatives, they wanted the borrower´s equity or assets to be expended before the lender accepted a loss. Deeds-in-lieu of foreclosure were generally only applicable to situations where the borrower had sufficient equity in the property to cover the lender's expenses incurred as a result of taking title to and re-selling the property. If the borrower´s equity was not sufficient to cover the lender´s expenses, then they lender was not interested in taking title to the property. Similarly, lenders were not interested in negotiating a short sale with a borrower who had other assets which could be sold to repay the lender. Lenders generally wanted borrowers to expend whatever financial resources they had before the lender would consider taking a loss on the borrower´s mortgage. In both cases, equity and the tax code necessitated that the borrower should be the one to absorb any losses and not the lender or it´s investors. Some lenders are and were a bit more enlightened about modification agreements, which is simply a mutual agreement between the parties to a mortgage to change one or more terms and conditions of the mortgage. Many lenders would not agree or even acknowledge that a modification was possible, but some did. And in cases where borrowers experienced a short term financial hardship some lenders would agree add the missing paymentstopinto the mortgage by increasing the outstanding principal balance owed. Similarly, the parties could agree to changes any other terms and conditions as the situation necessitated and parties were willing to agree upon. Regardless of whichever situation applies, the current housing market and financial environment is over whelming some lenders and borrowers should contact their lenders and investigate any or all of the possibilities the lender is willing to entertain. However, prior to contacting your lender, the best thing a borrower can do is become as enlightened as possible about their situation and the remedy they are seeking; precisely because lenders are overwhelmed requests from reasonable, knowledgeable borrowers or their legal representative will likely receive more attention than a request made in the dark. top |
| Why would a lender want to work with a borrower in default? Historically foreclosure actions are disfavored actions; judges are human and they do not like ordering people from their homes. Also, foreclosure actions can drag on for an exceeding long time if actively and vigorously contested. During that time market conditions might change with property values increasing or decreasing depending on market conditions. And some borrowers will remove or sell appliances and fixtures and / or will vandalize the property thereby diminishing its market value. And all the while the lender is potentially risking an increasing legal fees and costs associated with prosecuting a legal action and any interest their money might have earned if it was invested productively. If at anytime during this process, the borrower suggests an alternative that potentially benefits both the lender and the borrower and either provides the lender with payment in full or minimizes the lenders losses then the lender will consider the borrowers offer within the context of their business environment generally and the borrower's situation specifically then the lender may agree to work with the borrower. When the need arises, borrowers will want to speak with someone from their lender´s "Loss Mitigation", "Asset or Home Preservation", or "Workout" departments to discuss alternatives. Remember, every situation is unique and there are many factors contributing to a lender´s response so it is unlikely that the situation will be resolved with a single phone call or letter. This is definitely one situation where borrowers will benefit my exhibiting a calm, polite and patient attitude. top |
| What about Florida Homestead Protections? Florida Constitution Homestead protections generally do not apply to protect against foreclosure of mortgages as the law allows and most mortgages include permission from the borrower to the lender allowing the lender to foreclose or pursue any other remedies that may be available to the lender in case of the borrower's default. top |
| What is forbearance? As noted above lenders have the right to expect borrowers to repay in a timely fashion. However, they realize that sometimes things happen beyond a borrower's control. If you have a good deal of equity and have a strong payment history you may find that your lender is willing to hold off or forbear from pursing their legal remedies and allow you to make up any missing payments over time by simply agreeing to a structure of increased monthly payments that make up the missed payments and any increased interest and late fees owed. Lenders will probably insist on a written promise from borrowers in order for this to workout to be acceptable which would describe the borrowers promise, but would leave the mortgage and note intact and unchanged. top |
| What is a modification agreement? In some cases where you are only a couple of months behind and you cannot pay the total amount in arrears but would be able to start making regular payments again, you may be able to negotiate with your lender to modify the terms and conditions of your loan. Lenders normally do not acknowledge that they can modify their loan documents, especially if you are current and prefer instead to insist that you refinance. But a loan modification is possible and it would be nice if your lender was the exception. Regardless, if you fall behind lenders are sometimes more likely to agree to modify your loan rather than foreclose. Lenders are not legally obligated to modify their loans; this is a service based upon a business decision to avoid potential losses from instituting a foreclosure action and to keep a good customer. As such, a typically loan modification would add the missing payments, late fees and costs including legal fees to the loan principal and re-amortize the loan over the remaining term and thereby increase your monthly payments and get youtopon track as a good customer. top |
| What is the right of redemption? The state has a public interest in seeing that home owners keep their homes and to protect citizens from predatory lending practices. One way to help homeowners is to guarantee the right of the borrower or debtor to be able to stop the foreclosure action by remitting payment in full to the lender. Florida statute Section 45.0315 provides that debtors may exercise their right to redeem their property from at any time prior to the recording of a certificate of sale by the clerk of the court or the time specified in the judgment, order or decree of foreclosure. Payment in full includes the total of outstanding principal and interest, accumulated fees and expenses, including legal fees. The closer in time you are to the public sale, the less likely lenders are willing to modify loans and insist on full satisfaction of the loan. top |
| What is a deed in lieu of foreclosure? In some situations, generally where there is sufficient equity to cover the lender's expenses, a lender may agree to accept a deed to the property securing their interests as payment in full for the loan and dismiss any legal proceedings they may have initiated to collect. The advantage to the lender is that they stop incurring additional legal fees, they have resolved the problem of a defaulted loan without further loss and after they sell the property the lender can reinvest the capital. The advantage to the borrower is that the lender accepts title as payment in full. This strategy may not work if you have two or more loans from different lenders, as the property is still encumbered by the lender who did not receive title to the property. A borrower may not unilaterally decide on this course of action, the lender needs to agree to accept title or most likely they will simply proceed with their action to foreclose. top |
| What is a short sale? For many of the same reasons a lender is willing to accept a deed in lieu of foreclosure and if it makes financial sense, a lender may go a step further and accept the sale of the property which would result in the a loss or short fall between what the borrower owes and the amount of the proceeds from the sale. This strategy is most likely to be successful if the borrower can show that they are will not profit at all from the sale and are without any financial ability to cover the lenders loss. A short sale is very difficult to negotiate and coordinate. It will require the borrower provide substantial paperwork starting with a letter of hardship outlining the borrower's current financial situation, an up to date financial statement, bank statements, a preliminary or estimated net sheet from the sale of the property indicating that the borrower will not profit from the transaction, current broker's price opinion or appraisal of the property and a executed contract for sale and purchase of the property subject to the bank's acceptance of the shorted payoff. If the lender accepts the short sale, they may issue notice to the I.R.S. of the relief they gave to the borrower meaning that the loss suffered by the lender could possibly be reported as income and impose a liability on the borrower for additional income tax. top |
| How will declaring bankruptcy help me? Declaring bankruptcy imposes an automatic stay on any legal proceedings regarding the debtor's assets to allow the federal court time to assess the situation. A lender can and probably will petition the court to remove the stay so that they can proceed with their foreclosure proceedings, but this strategy may provide the debtor / borrower with a bit of extra time to facilitate an alternative strategy. This step is not to be taken lightly and should be considered a last resort after speaking with an attorney who specializes in bankruptcy proceedings. |
| What if I owe more than my lender receives in a foreclosure or a short sale? Whenever a foreclosure results in a deficiency to the lender, meaning that the amount they received for the property at the foreclosure sale was less than the amount owed to the lender the lender may, at their option, pursue a civil action against the borrower to collect the deficiency or the lender may simply declare the deficiency as a loss. Similarly, a lender may opt to report any deficiency that results from accepting a short sale to the IRS as a loss. In both cases the loss is in turn treated by the IRS as income to the borrower. The Mortgage Forgiveness Debt Relief Act is for good news for some borrowers in that it allows the exclusion of income realized as a result of modification of the terms of the mortgage or foreclosure on a principal residence. The Act currently applies to qualified debt forgiven between 2007 and 2012 for principal residences. The Act does not apply to investment properties. top |
| Where can I go to obtain legal advice on this issue? The material on this web site represents general legal advice. Since the law is continually changing, some provisions may be out of date. It is always best to consult an attorney about your legal rights and responsibilities regarding your particular case. If you believe you need legal advice, call your attorney. If you do not have an attorney, please contact Bob by e-mail or by phone at 727-647-3700. Or call The Florida Bar Lawyer Referral Service at 1-800-342-8011, or the local lawyer referral service or legal aid office listed in the yellow pages of your telephone book. top |
For personalized answers to your specific situation please contact Bob by e-mail or by phone at 727-647-3700.
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© Copyright 2011-2004, Robert G. Lowe, PL, all rights reserved. "Robert G. Lowe, PL" and rgllaw® are trademarks for legal services. This site was last updated August 2011. |