Deed in Lieu of Foreclosure in Florida and/or Chapter 13

Since I don't know the details of your case, I can only answer in a general way. As to exactly what can be done, every case really is different than every other one. The policy in my practice is to start at the end - what is the client's goal - and then to work from there to develop a strategy that will have the best liklihood of achieving that goal.

You don't say whether it is your goal to try to keep the house, or not, and so that makes it difficult to respond since the strategic approaches would be very different if your goal is to keep it or to give it up and to minimize your exposure in doing so.

A deed in lieu of foreclosure is only an available option if your mortgage servicer will agree, and only then if there are no other mortgages, equity lines or other liens on this property, and many times even then they will not, or if they do, they may impose conditions, such as your giving them a note or a judgment for the shortfall, or their retaining the right to pursue deficiecy judgment. Aside from the loss of the property, the deficiency judgment risk is the single largest danger facing people with mortgage problems.

The term "deficiency judgment" refers to a judgment for a debt, the amount of which is the shortfall that is created after foreclosure. deed in lieu or short sale, when the collateral taken back by the lender (your property) has a current market value that is less than your current debt to the lender. Since the lender was not made whole by taking the property back, the law allows it to come after you for the difference.

Since your property is upside down, you are at very real risk of facing a deficiency judgment. In Florida, it is easy for the lender to retake the property and then to get a deficiency judgment against you for the entire shortfall, to which it is allowed to continue adding interest, costs, realtors' commissions, etc. Florida law makes the process of pursuing deficiency judgment quite simple and gives the lender a very long time (5 years) to even begin the process.

Some people are telling me that they have been advised by attorneys and realtors not to be concerned about the risk of deficiency judgment, that lenders do not pursue them. With all due respect, THAT IS INCORRECT. They can, and they DO. I am defending deficiency judgment claims for clients right now relating to cases where the borrowers either allowed foreclosure or did short sales and deeds in lieu without a waiver by the lender/servicer of the deficiency judgment claim. So, it is already happening, and I assure you that there will be a great deal more of this happening in Florida. A deficiency judgment can be discharged in bankruptcy, however that only occurs after you have fully completed the Chapter 13 plan, which in your case would mean 60 months. As you correctly recognize, you would not qualify for Chapter 7. Given the amount of other debt you have, Chapter 13 might be useful to you, however, if you have no dependents and make about $100k, you would have to pay a very large amount to the Chapter 13 Trustee in order to get a plan confirmed, which would go on for 60 months. If you were to lose your job, unless you had another source of income, your Chapter 13 case would be dismissed, since it is necessary for a Chapter 13 Debtor to have regular income.

The Mortgage Relief Act of 2007 applies to primary residential properties lost or given up through 2012. However, it does NOT remove the risk of deficiency judgment - what it does is to allow you to avoid the negative tax consequences. http://www.irs.gov/individuals/article/0,,id=179414,00.html

If you would like to discuss your case in more detail, our contact information is on our website, www.golantlaw.com