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Foreclosure requirements?

Ocala, FL |

I know nothing about this topic. Can a person just decide that he does not want to make the payment for some property and go into foreclosure? Does he have to prove that he cannot make the payment? Does bankruptcy go with not keeping your end of the payment agreement up? If the property goes for excess of the price, after fees and all, does the person who failed to make the payment profit from the sale or auction?

Attorney Answers 4

Posted

Foreclosure is the remedy that mortgage lenders and associations have to enforce the obligation of the debtor to make payments. The property is collateral for the debt, so that, if there is a default, a forced sale of the collateral can be accomplished, and the proceeds of the sale of the property applied to the debt. No borrower needs to prove anything in order to trigger foreclosure, all that is necessary is to stop paying. It is the creditor or its servicer who will start the process, because the creditor wants its money, so wants to liquidate th e colateral in order to get what it can from it. Foreclosure is not normally anything but bad for the homeowner.

There was a time, when mortgage lending was done carefully, that the collateral was worth more than the debt, so that if foreclosure was necessary, the creditor got back from the proceeds of the sale all that was due on the debt. Then, if the price at the foreclosure auction exceeded what was due to the creditor, the remainder went to the property owner, unless there were other lienholders. If there were other lienholders, the remainder went to them, in the order of their liens. However, I would not call this "profiting" - if any excess proceeds did go to the borrower, that meant he had a property with equity, and all he was getting back was what was left of his equity after all lienholders were paid off. It is no different in effect than if the owner sold the property voluntarily, paid off all liens, and then was entitled to keep whatever was left. However, these days most of the foreclosures in Florida relate to properties that are under water, meaning that they have no equity, and in fact the debt is larger than the value of the property. In that sort of situation, there are no excess proceeds, and in fact, usually the mortgage creditor winds up buying the property because there are no other bidders willing to pay more. If someone owns property in which there is equity, it makes much more economic sense for them to sell it themselves and to pay off the lienholders at closing.

In Florida, the law allows the mortgage creditor to obtain a deficiency decree when the property is upside down, for the entire difference between what the property it foreclosed on was worth at the time of the judgment and the total amount of the mortgage debt, including all accruals and expenses. This is something most foreclosure defendants do not realize. Due to the enormous real estate and mortgage bubble that existed in Florida, people foreclosed on will normally not only lose their property, they are likely to wind up on the wrong side of a deficiency judgment involving a huge amount of money - I have rarely spoken to anyone in foreclosure in Florida who was less than $100,000.00 upside down, and sometimes far more than that. A deficiency judgment, once obtained, can have a life of 20 years, can be used to garnish wages and/or to levy on other assets of the debtor, including tax refunds, vehicles, etc. etc.and can be utilized in any state of the US where the debtor may move, and even in foreign countries.

There are times when a bankruptcy filing may be useful to a foreclsure debtor, if the debtor is a good candidate for bankruptcy, and not everyone is. A Chapter 13 case might be usable to stop the foreclosure and allow the debtor to get back on track, a Chapter 7 case might be usable to discharge the deficiency exposure.

This is an extremely complex area of law, further complicated by the fact that no two situations are identical, so it is impossible to cover appropriately on a web site. Anyone who is in foreclosure or facing it should obtain qualified legal advice specifically analyzing their own particular situation. It is impossible to explain here why, but every case is different, and there may be solutions or alternatives. However, it is like navigating a jungle for a borrower to attempt to do this on his or her own.

Please note that the above is not intended as legal advice, it is for educational purposes only. No attorney-client relationship is created or is intended to be created hereby. You should contact a local attorney to discuss and to obtain legal advice.

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Posted

Attorney Golant his described mortgage foreclosure well. I want to emphasize that foreclosure and bankruptcy are things that are last resorts. You should explore all other avenues open to you before you suffer the negative consequences of either. You should consult with an experienced real estate lawyer in your area to help you consider other options.

Disclaimer: This answer is provided for informational purposes only, does not constitute legal advice, and does not create an attorney-client relationship. Actual legal advice can only be provided after completing a comprehensive consultation in which all of the relevant facts are discussed and reviewed.

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Posted

I encourage you to read Ms. Golant's answer as she is very knowlegeable and you just got a free consultation as I'm sure that took her quite a while to write. I'm just offering a short answer: 1. Yes you can decide not to pay, but there are consequences if you do not do anything--the main one is that if there is a judgment against you, it can follow you around by garnishing wages, taking your tax return refunds, bank account attachments--thing like that. emphasis on follow you around.

2. I lost common sense after law school, so I don't know what bankrutpcy going along with keeping your end of the payment agreement means. All I can say it that Bankrutpcy is a Constitutional right--literally, it is written into the Constitution of the United States, but people cannot just run up bills and file bankrutpcy every 6 months when the debt gets to be too much. Mainly, it depends on how much income you have and when was the last time you filed for bankrutpcy as to whether you CAN file for bankruptcy. Lastly, there are different kind of bankrutpcy for a person or a business and whether you want to settle your debts or just wipe em out.

3. As far as selling a property at a profit nowadays whether you are selling to someone by your choosing or by a forced sale that you did not want to do, but have to do because it is a foreclosure sale--I don't thing very many people have sold their house at a profit unless they bought it 20 or 30 years ago and it really appreciated in value and they kept it in good shape. But yeah, if I bought a house 30 years ago for $75,000 and its worth $500k and I went into foreclosure they bank would take whatever I owe them and I keep the rest. But if I had the house 30 years I probably paid it off and I don't don't owe the bank any money. So what usually happens is if I owe $300k on a house and it sold at a foreclosure sale for $150,000 then I owe $150,000 plus attorneys fees and association dues and appraisers fees and past due insurance and past due taxes, etc. etc.

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Royce Brent Bishop

Royce Brent Bishop

Posted

Hope that helped a little. I know answering a question just causes about another 5 or 10 questions to light up . . .

Posted

All of the answers provided so far have been excellent. If you stop making mortgage payments not because of financial hardship, that is known as strategic default. Choosing to engage in strategic default is something ultimately you have to decide to do. Some borrowers have done so because their homes are so underwater that from a financial perspective solely, it makes little sense to make payments on a mortgage that outweighs the value of the home.

Businesses walk away from bad deals all the time, yet there is still a 'moral contagion' concern when it comes to home ownership. However foreclosures are speeding back up again, so if you simply stop paying, especially without an attorney helping you, I believe in 2012 you will be foreclosed on quicker than you might have been say a year or two ago.

That's why hiring an attorney is crucial. For one, your bank might no longer own your note, and might have engaged in fraudulent activity in selling it off. If we can prove that, as we have in 20 percent in our cases, we can get a foreclosure stopped entirely.

If not, then we can help you negotiate a loan modification. Another strong option to consider is a short sale. If it's your desire to walk away from the home entirely, a short sale is often the way to go. Banks are agreeing to more and more these days because it's easier and more cost effective for them to agree to a short sale than to proceed with a foreclosure. A short sale is where you sell the home back to the bank for less than the amount your originally borrowed. This is usually done when the home is underwater. We have in many cases negotiated a short sale where the borrowers does not have to pay the deficiency (the amount between the sale price and your original mortgage) And some lenders will pay you money, in some cases as much as 35,000, to agree to the short sale. I wouldn't call it a profit, (its more typical to receive 5-10K) but that's money you can use for moving expenses or rent.

Please consult an attorney. This is not legal advice. Just a response to a generic question. Each situation is different and requires an attorney to analyze the facts, law and application of the facts to the law.

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