Homeowner Alternatives

$1,600 Flat Fee Foreclosure Defense

Foreclosure Proceedings and Alternative Solutions

The rate of national and Florida mortgage defaults and foreclosures increased dramatically between 2006 and today, rising to their highest levels in 30 years. Florida, along with California and Nevada, are the three hardest hit states in the nation. In fact, the Mortgage Brokers Association announced in November, 2010 that Florida leads the nation in the percentage of homeowners who are “seriously delinquent” on their mortgages. Of note, roughly half of JP Morgan Chase’s national foreclosures are pending in Florida and of Bank of America’s 106,000 national foreclosures, 55,000 are in Florida.1 In Brevard County, it is estimated that foreclosure filings will easily exceed 10,000 for calendar year 2011. This article will briefly summarize several options to help the borrower avoid foreclosure. It will also discuss the foreclosure process itself, should a lender institute proceedings.

Options to avoid foreclosure include forbearance plans, short sales, deeds-in-lieu of foreclosure, and loan modifications. With forbearance plans and loan modifications, the borrower retains ownership of the property. With short sales and deeds-in-lieu, the borrower does not. With all these options there are potential IRS tax implications making it wise to consult with an accountant or an attorney prior to consummating a transaction.

With a forbearance plan, a lender agrees not to exercise the legal right of foreclosure if the borrower agrees to a payment plan. The payment plan is implemented for a specific period of time, at the end of which time the borrower’s deficiency will be resolved. The plan may incorporate features such as reduced or suspended payments that allow the borrower to recover from a serious event, such as a divorce or unemployment, which may have caused the borrower to miss several loan payments. Most often, the lender will require the borrower to make up the difference at a later time.

Loan modification involves making temporary or permanent changes to the terms of the existing loan agreement. There are several ways to make these changes, including allowing the borrower to skip payments and adding the skipped payment to the amount of the loan, reducing the interest rate charged, extending the loan term, and reducing the total amount of the loan, otherwise known as “principal forgiveness.” All lenders that took Troubled Asset Relief Program (TARP) monies from the US Treasury must at least process and consider a borrower’s loan modification request, involving a primary residence, per directives issued under the Home Affordable Modification Program (HAMP), also know as “The Obama Plan.”

In a short sale, a house is sold for less than what the owner still owes on the mortgage. A short sale may be accomplished with the help of a real estate agent or through other means. Lenders may agree to accept the proceeds of a short sale in full satisfaction of the sums owed on the mortgage and thereby waive any deficiency claim.

Under a deed-in-lieu of foreclosure, the borrower voluntarily conveys his or her interest in the home to the lender, to satisfy the loan, as an alternative to foreclosure proceedings. Lenders may opt to accept ownership of the property in place of the money owed on the mortgage and may waive any deficiency claim. Deeds-in-lieu will generally not be accepted by a mortgage holder if there are other liens on the property, as a foreclosure may be necessary for the mortgage holder to gain clear title to the property.

Foreclosure is a legal process involving a lawsuit initiated by a mortgage lender against a borrower after a certain number of mortgage payments have been missed. The foreclosure process has several possible outcomes: reinstatement of the loan; a loan modification; or the property being sold at judicial auction to repay the outstanding debt. All foreclosure proceedings in Florida are undertaken in the State Court in the county where the property is located.

For well over one hundred years, Florida law has consistently mandated that very strict legal procedural requirements be met before a lender may fully foreclose on a property. Florida’s long history as a property rights state has, fortunately, ensured these safeguards and protections for property owners in Florida. Twenty-seven states in the nation do not afford their residents these legal safeguards. There are many different defenses to foreclosure that a borrower may invoke. Some, but not all, of a borrower’s defenses may be: the party initiating the foreclosure does not have legal standing to enforce the promissory note; the lender has not properly given notice of the borrower’s default; and the lender has not properly accelerated the promissory note.

If the property being foreclosed upon is the borrower’s primary residence, he or she has the right to demand an in-person mediation session to attempt to negotiate a loan modification or to explore alternatives to a full foreclosure. The American Arbitration Association (AAA), a non-profit entity, administers said mediations in Brevard County and the cost for same is borne by the lender. The borrower, the borrower’s attorney (if applicable), the lender’s representative (who is required, under the subject program, to have settlement authority), the lender’s attorney and a mediator appointed by AAA, all attend the mediation session in an attempt to amicably resolve the foreclosure via a loan modification, short sale or deed-in-lieu. The Brevard County Eighteenth Judicial Circuit was one of the first judicial circuits in Florida to institute the Residential Mortgage Foreclosure Mediation Program. A very similar program was subsequently enacted in all Florida counties, by the Supreme Court of Florida, at the end of 2009.

Disclaimer: The foregoing article is informational only and is not to be construed as the rendering of legal advice or to have created an attorney-client relationship.

Joseph G. Colombo, Sr. is an attorney with the firm of Mommers & Colombo in Melbourne, Florida, and has been practicing in the areas of real estate, construction and general civil litigation for 15 years. He may be reached at 321-751-1000.


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