Foreclosure Truths and Myths
Many Central Floridians find themselves owning either investment properties or their own homes which they cannot sell because the mortgage payoff(s) are too high and the property values are not great enough. The increased demand and scarce supply of building materials in post hurricane 2004 and 2005 drove up the prices of new construction and resale and the availability of mortgage money with no income verification, no or low documentation created am environment where lots of nice conservative people who either bought and mortgaged or re-mortgaged too much house for themselves or tried their hand at investing with 100% financing are stuck and unable to make the payments and unable to sell the homes without bringing money to the closing table..
What is the foreclosure process and how long does it take?
Most residential FNMA mortgage forms state that when a borrower is delinquent 30 days, the bank can send 30 days notice and refer to a foreclosure law firm to file a judicial foreclosure proceeding in the county where the real property is located. The first step is personal service with the summons and complaint by a member of the Civil Process section of the Sheriff’s Department or a private process server. The homeowner may be served at home, at work, at a social function or any other place that he can be found. Other Defendants to be served usually include any of the homeowner’s other mortgage holders, judgment creditors, IRS lien, homeowners’ associations and other lien holders with the exception of County Code Enforcement Liens and the liens for Unpaid Real Property Taxes. If not found, there can be service by publication in a local newspaper.
After service, there are 20 days to respond in writing and then the Foreclosure Attorney sets a Final Judgment hearing with 20 days written notice. At the hearing, any defenses can be presented but financial hardship or inability to pay are recognized by the Courts as defenses. At the hearing, the Judge sets the foreclosure sale wherein the Clerk of the Court offers the property for public auction at the Courthouse following about 30 days of publication in the newspaper.
At the foreclosure sale, the Foreclosure attorney bids only up the amount of the Final Judgment including all court costs and attorneys fees and the public is welcome to bid more. Whomever wins the bid gets the foreclosure property and has to pay the Clerk in full on the same day as the sale. If no one outbids the Foreclosure Attorney, the Bank gets it back and remarkets the property. A deficiency judgment representing the difference between the fair market values of the real property as of the day of the sale and the debt and added expenses to the Bank can be entered by the Judge against the former homeowner original obligor as late as one year following the foreclosure sale. The deficiency judgment remains in the Public Records against the former homeowner as a lien for 20 years.
What is a short payoff and can it be done once the foreclosure is filed with the Court?
A short payoff is when the Bank accepts less than its full indebtedness including interest, any prepayment penalties and late charges in order for the property to be sold. Also it will include attorneys fees if the matter is already at the Foreclosure Attorney. The Loss Mitigation department at the Bank will require a letter of hardship explanation, 3 months bank statements, 2 years W-2s and tax returns, and a financial statement including a list of all other debts and financial problems.
If the short payoff is granted by either the 1″ or 2′ mortgage holder, the property can perhaps be sold at a price wherein the Seller does not have to bring in money to closing and the short (or reduced) payoffs will be accepted. It is important to ask the Bank whether the Bank will turn in their bad debt write-off to the Internal revenue Service which will result in income to the Homeowner who will be taxed on the amount of the about 1-1/2 to 2 years later. This is commonly called “1099ing” the homeowner. This “1099ing” an be negotiated away. Also, if there are no other liens, sometimes the Bank will accept a Deed in Lieu of Foreclosure wherein the property is just handed back to the bank. The Deed in Lieu counts against a person’s credit but not as badly as a foreclosure.
Should I deed my property to an investor to does not plan to pay off my mortgage for a while?
This deed, even a quitclaim deed, does violate Paragraph 17, the “Due on Sale” clause of the FNMA mortgage but its practice is becoming more and more common and lenders usually do not find out unless the reinstatement of back payment is not made or the investor does not make the payments timely. The big risk for the owner who sells in such a fashion is that his credit is made even worse. Sometimes investors neither reinstate nor make any payments at all so the property winds up in foreclosure anyway. Sometimes investors just rent to innocent tenants who become evicted anyway. If the property goes into foreclosure, the original owner becomes a Defendant anyway if the deed is not recorded and even if the deed is recorded and the original owner does not know about the foreclosure, his credit is severely damage with the foreclosure. There are very reputable and well funded investors who can successfully help the homeowner contact the bank(s) and negotiate the short payoff(s) and bring the whole matter to any honest closing wherein the mortgage(s) are paid off at closing and everyone wins. The only way that a homeowner or realtor involved in such a transaction can successfully protect themselves and have their credit protected is by hiring a knowledgeable, experienced real estate attorney before any papers are signed.