Miami Real Estate by Land and Sea

I have previously written about how attorneys can be great and how they can be bad in the field of helping distressed homeowners.  Now the California Bar Association has published the preliminary results of an investigation into those attorneys supposedly offering services to help distressed homeowners in one of the hardest hit states.

Attorneys, especially real estate attorney, but also divorce and family law, criminal and commercial law practitioners have had a few dismal years.  Finding a new niche appeared easy to some attorneys, especially with promises of "loan modification experts" telling them to just refer the business their way for a referral fee.

As stated in my previous blog articles, the problem is several fold.  For one, attorneys to get this business were paying illegal referral fees to non-attorneys.  Another is that they were practicing law in states without a license in that state.  And yet another is that they were fronting for loan modification firms but not really doing any work for their "client".  And the "client" actually was the loan modification firm and not the distressed homeowner.

In my practice, which includes extensive work on short sales and loan modifications as well as foreclosure defense (whatever that means), we have people coming in showing us examples of: Attorneys sending non-legal "salesmen" out to solicit business for a company that the attorney then gets a "legal fee" from; giving false information - I can't say it is "wrong" information because it just isn't; and attorneys offering "delays" as a solution to a distress homeowner - typically saying, "we will delay and delay (for which you will pay me a monthly fee) while you don't pay your mortgage (and stay in the house for free, or collect the rent from your tenant) and then when the bank finally gets through the delays we will offer to settle with them for a modification or whatever".  Sound lilke a plan to you?

Distressed homeowners should seek help -- BUT: 1.  Be realistic in expectations; 2. If it is too good to be true, it isn't.  3.  If you are being pushed to sign up, DON'T!   4.  Get recommendations and actually check them out!

Copyright 2009 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com  New Website www.Florida-Counsel.com.  See our easy to find articles at TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES.

Richard Zaretsky's Short Sale and Modification Blog Articles

 A Periodic Listing of Articles by Richard P. Zaretsky, Esq.

----------------------------------------------

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com  New Website www.Florida-Counsel.com

---------------------------------------------

LOAN AUDITS - FORECLOSURE DEFENSE FALLACY?

The concepts of foreclosure defense preparation have started a cottage industry, unregulated as with most of the home saving concepts, called "loan audits".

WALK AWAY FROM THE PROPERTY - STRATEGIC MORTGAGE DEFAULTS GROW TO 26%

A mortgaged homeowner is likely to "walk from the property" or "give it back to the bank" based more on loss of equity than the ability to make the mortgage payments, a recent research paper emanating from the University of Chicago says. The paper researches and analyzes when American homeowners are likely to "walk away from their mortgages"  These actions by mortgaged homeowners when the indebtedness substantially exceeds the equity value of the property, is called a "strategic default".  The study found that 26% of all homeowner defaults today are strategic defaults.

SHOULD I PAY MY MORTGAGE?

This seems to be THE NUMBER ONE question I get.  Unfortunately there are several answers and which  is correct for you depends on the Circumstances.  I will address the common scenarios in this article.

Your Property is Underwater - What is the solution?

The Distressed Property Owner's "Goal" is an interesting situation for each individual and for each individual experiencing this event, it is different.  I like to help my client visualize creating a solution or "goal" by telling a visualization story.

SHORT SALE FLIPS - TITLE INSURANCE PROHIBITED 

The short sale flip apparently is alive and well for some investors - and it is causing havoc with title insurance underwriters.  Now the title insurance underwriters are making their case simply by declaring that they won't insure such transactions.

BUYING A FORECLOSURE - DUE DILIGENCE AND STATUS OF TITLE 

More and more I have been receiving telephone calls and emails wanting me to discuss issues relating to buyer foreclosures and short sales and REO properties.  Everyone (both qualified but usually unqualified) seems is writing or buying books on the process, so I figured it may be time to put in my two cents and talk about title issues and due diligence

MOTION FOR SUMMARY JUDGMENT OF FORECLOSURE - DEFEATED! AND HOW I DID IT

Today I used a new technical defense to successfully defeat a motion for summary judgment for foreclosure and I wanted to pass it on to other attorneys (or those who know attorneys) helping homeowners in foreclosure.

SHORT SALE BUYER CANCELLED CONTRACT EPIDEMIC - DIAGNOSIS AND CURE

This past week my office had 5 short sale buyer's walk from their contracts!  Although I use an exclamation mark, it is not an unusual occurrence.  In fact it seems that it takes 4 contact buyers to make a short sale finally happen.  If that was an average for a traditional sale situation, Realtors and title agencies would be climbing the walls. 

MORTGAGE FORECLOSURE RESCUE - THE BAD GUYS DON'T WEAR BLACK!

In last week's New York Times an article focuses on how Home Savers Consulting is accused of committing fraud and profited handsomely at the expense of the former homeowner. Worse, the former homeowner thought she still owned the home - she did not.

FORECLOSURE RESCUE AND MORTGAGE MODIFICATION FRAUD - ALERT ISSUED

This week the Florida Bar made public the outlandish and misleading representations that have recently plagued the mortgage modification industry in this state and probably nationwide.  The mortgage modification industry has sprung up faster than mushrooms - mostly through mortgage brokers that have seen their ability to make loans dry up in this recession and are applying net office sales techniques to the mortgage modification boom.  The problem is that many states have enacted new laws to put them out of business.

SHORT SALES PRIMER - BACK TO BASICS UPDATED

Short Sale Primer For Brokers, Sellers and Buyers - A Primer -

Since I wrote the Short Sale Primer the short sale methodology used by lenders has morphed several times.  It is a different animal than it was almost 10 months ago.  The passage of time requires that the original article, which was very popular (thank you) be revised to reflect new policies by the lenders.  I have also added several pertinent links to more detailed discussions on the various subjects in this article.

SHORT SALE AND FIRPTA TAX WITHHOLDING - IRS ISSUES PRIVATE GUIDANCE

Back around Christmas, 2008 I co-authored a blog with Miami tax attorney Shawn Wolf, Esq. on the issue of a FIRPTA transaction coupled with a short sale.  The analysis showed that there were no specific IRS regulations and no rulings regarding a short sale transaction that was subject to FIRPTA.  See FIRPTA and SHORT SALES - DANGEROUS LIABILITY TO BUYER AND CLOSING AGENT.

Last month a communication came through from the IRS that confirmed the conclusion made in that article.  I am providing to you the question that was posed to the IRS and the answer received from the IRS for those of you that meet this type of situation

TENANT RIGHTS AND FORECLOSURE - A DISCUSSION OF SAFEGUARDS

The unintended victims of the foreclosure process are often the occupant of the home that is a tenant.  The landlord is a borrower under a mortgage that has gone into default and is now being foreclosed.  What is going to happen to the tenant as a result of the foreclosure?  How can a tenant or future tenant be protected from the ill effects of a foreclosure?  This article will attempt to address these issues.

MORTGAGE MODIFICATIONS TEND TO FAIL

Here is an interesting article from the Washington Post that describes the difficultiy many homeowners have with modified mortgages.

LENDER SHORT SALE ACCEPTANCE LETTER EXAMPLES - READ WITH CAUTION!

What is a short sale?  When giving lectures I like to use the definition as follows:  The sale of a real estate property for a price that is less than the total amount necessary to fully satisfy the actual present encumbrance (mortgage) indebtedness on the real estate property.  Often I see a different description, one that says, The sale of real estate when the lender accepts less than its mortgage amount and forgives borrower from paying the deficiency.

MULTIPLE SHORT SALE CONTRACTS AND HOW TO AVOID THEM

Why does it take 3.8 contracts to sell a short sale property?  Why do Realtors insist on spinning their wheels and getting nowhere selling short sale properties?

FORECLOSURE DEFICIENCY JUDGMENT or SHORT SALE PROMISSORY NOTE or BANKRUPTCY - REVISITED

Whether to agree to a negotiated promissory note in a short sale or allow the house to go to foreclosure is one of the most discussed topics around.  It deserves a simple comparison

FLORIDA REAL ESTATE MARKET CONDITIONS RELEASED TODAY

Today one of the state's largest title insurance underwriters release its 2009 Real Estate Forecast and Southeast Florida focus.  To those of us that live here it is no surprise that the numbers are grim. To those outside of Florida the numbers are shocking!  The report, issued by Attorneys Title Insurance Fund, makes several projections and findings.

FIRPTA and SHORT SALES - DANGEROUS LIABILITY TO BUYER AND CLOSING AGENT

It is critical for Realtors, Buyers, Closing Agents and Lenders to understand the important issues of the short sale when applied to the Internal Revenue Code's Foreign Investment in Real Property Tax Act of 1980 or FIRPTA transaction because disregard for following the FIRPTA rules will make the Buyer and Closing Agent and possibly the Lender liable to the IRS for the Seller's Tax Liability!!!!!  The problem is that right now there is NO RULE by the Internal Revenue Service ("IRS") for FIRPTA Short Sales.

Hope For Homeowners Act a Failure

I have many desperate homeowners coming to my office begging for ways to save their homes.  Often times the homeowners qualify under the published criteria for the hyped Hope For Homeowners program also called H4H by the FHA.  The program, passed by Congress in July 2008 was to save the homes of 400,000 homeowners.  So far only 300 or so have applied!  Why?

A LAWYER'S EXPLANATION OF THE FORECLOSURE PROCESS

As an attorney I often consult with homeowners that are in distress along with the Realtors that represent them in trying to accomplish a short sale.  Often a detailed explanation of the foreclosure process would be very worth while for my client to have a thorough understanding of what they may be facing as the lender seeks to enforce the promissory note and mortgage.  We usually don't have enough time to explain the process in full, so here is an article that should help non-lawyers understand what is happening according to rules of procedure in the court system and what options lenders have for enforcing the money they loaned to the homeowner.

IS THE FORECLOSURE FINAL? - AND HOW DOES IT AFFECT MARKETING A SHORT SALE?

As an attorney involved in the procedure of foreclosures and short sales I have been asked this question an increasing number of times - which tells me the legal process is confusing when it comes to the full run of the foreclosure process.  So this article will set it out from way in the beginning to the very end and hopefully it will answer your question.

WHAT'S WRONG WITH THE FAR SHORT SALE LISTING AND CONTRACT ADDENDA - AND HOW YOU CAN FIX IT

The Florida Association of Realtors took the lead in making some semblance of consistency, order, and standardized forms for use by Realtors for Short Sale transactions. I doubt many Sellers or brokers realize the draconian conditions of the documents they are using. If you are among them, this article may open your eyes. Because the evolution of Short Sales in 2007 and 2008 has been so dramatic, the forms became problematic at the outset.

FORECLOSURE DEFENSE FALLACY

If you are a listing Realtor or a person who has just gotten foreclosure notice from your lender(s), no doubt you have heard about a myriad of "Foreclosure Defense" firms that promise to delay or prevent foreclosure or even prevent the enforcement of the mortgage because if irregularities in the loan.  What in fact are foreclosure defenses?

SHORT SALE DEFICIENCY DEMANDS AND DEFENSES - The Interstate Highway Analogy

 "What chance is there that the bank is going to make me pay the difference (or deficiency) when we are through?"  This is the most often asked question I get as an attorney that specializes in residential mortgage loan workouts and (avoiding foreclosure through short sales or modification).  If you need basic information to understand the short sale and deficiency issue, see Back to Basics - a Review on Short Sales.

BAILOUT BOGDOWN

It is only 3 weeks since the new bailout programs "started" but don't ask for any testimonials from any homeowner whose home has been saved.

BANK REJECTS SHORT SALE OPPORTUNITY AND MAKES BIGGER LOSS

Here is more proof that the loss mitigators used by some banks just don't quite "get it".  In an article this morning in the Palm Beach Post, by staff writer Eve Samples, Wells Fargo is targeted for its botched handling of a short sale opportunity, resulting in a loss to the bank of at least $40,000 more than it would have experienced in the short sale opportunity. 

BAILOUT MISREPRESENTATIONS AND MISCONCEPTIONS

The government bail out of the housing crisis has created wonderfully conceived programs to keep homeowners in their homes with re-negotiated mortgages or refinanced mortgages.  The specific programs for the home saving legislation are the HOPE for Homeowners (H4H) and FHASecure programs.

I THOUGHT IT OUTRAGEOUS THAT ANYBODY HAS TO STEP IN TO BAIL OUT A BUNCH OF 29 YEAR OLDS DRIVING MASERATIS

Sometimes you get a frank speaking knowledgable person that sums up the day's thought succintly and in one sentence.  Speaking on the Financial Crisis, legenday investor Jim Rogers, in an interview reported on CNBC this morning said the irresponsible people need to go bankrupt if necessary.  Here is the quote - you'll love it since it is So True!

ARE WE IN SHUT DOWN MODE?

The stock market is at equivalent lows to times dating back to the Great Depression (which for those of you needed date measurements is almost 75 years ago).

TOP TEN LIST OF SHORT SALE OBSERVATIONS  

For all you short sale Realtors - Here is my list of the top ten short sale rules when dealing with sellers and buyers.  What is your top ten list for YOUR favorite category involved in the short sale process (lender, buyer, seller, buyer Realtor, Seller Realtor, processor, loss mitigator and servicing agent, etc.)?

YOUR Ticket to Normalcy? THE BAILOUT BILL

The Emergency Economic Stabilization Act just passed on October 3rd is not the cure-all you might hope for.  The Act authorizes the creation or expansion of governmental entities and departments to deal with the housing crisis.  Implimenting these provision is what will create the "cures".  Assuming the "cures" are in place, there are going to be effects upon Realtors, Mortgage Brokers and Distressed Homeowners.  This is how I see the Act helping each group.

EMERGENCY ECONOMIC STABILIZATION ACT - WHAT IT MEANS FOR YOU

My wife asked a very important question this morning - so what does this new Act do for the housing market?

NUTSHELL VERSION - EMERGENCY ECONOMIC STABILIZATION ACT

The BIG news this week is the passage on Friday of the Emergency Economic Stabilization Act of 2008 - or more formally called "Secure Rural Schools and Community Self-Determination Act of 2000".  Yes, that is how it started and it is known as H.R. 1424.  What it says will change our economic horizon for decades and this article will discuss its major imports for the real estate buyer and seller and homeowners.

BAILOUT FOR HOMEOWNERS - WITHOUT WALL STREET

149 years ago today, Abraham Lincoln stated an important fact for today's financial crisis.  But first a word of hope.  It is human to think that when times are good, they will stay good. And when times are bad we all hope for good times.  King Solomon went on a quest to find one item that would remind him to realize that good times or bad times, neither is permanent and to be prepared for the other.  He found a ring imprinted with the saying, "this too shall pass".

FLORIDA FORECLOSURE FRAUD BILL - UPDATE

Government can react positively when enough people raise their voice - and the law is clearly against public policy.  This post updates my article on the Florida Foreclosure Fraud Bill

Second Mortgage Short Sale - Holding Up the Railroad Loot

The Second Mortgage Dilemma can ruin your short sale - Like the old West, the stagecoach holding the railroad's payroll was always getting held up by the bad guys - at least in the movies.  Has much changed in the Wild West environment of short sales and the fight between primary and secondary mortgage holders?

BANKS CREATE BILLIONS (MORE) IN LOSSES -

Short Sale Buyers are increasingly investors seeking to buy and flip or buy and rent for positive cash flow.  Missing from the field are homebuyers seeking a place to live.  Why?

Foreclosure Deficiency Judgment Compared to Deed In Lieu and Short Sale Scenarios -

Basic Primer - the Mechanics of a Mortgage Foreclosure Deficiency Judgment Compared to Deed In Lieu and Short Sale Scenarios - We get so many questions about having a "deficiency judgment" entered and how it differs from other possibilities in a deed in lieu of foreclosure or short sale, that a refresher article seems appropriate for Activerain.  If you are unsure of what a Short Sale is, then first read the Back to Basics - a Review on Short Sales

Back to Basics - a Review of Short Sales

Short Sale Primer - Back Room Lender Decisions - Short sales are nothing new.  When I represented a national lender for all of their foreclosures in the State of Florida several years ago, we negotiated "loan workouts" which are now called "short sales".  Since they have been around so long, I did some digging with my old pals that were the executives I worked with in the loan workout and REO department of this national lender (the lender has since been merged into Bank of America).

THE BANK CHANGED THE LOCKS! -

There is discussion on Active Rain from time to time on whether in a short sale it is advisable to move out of the house. The real issue is the clause in the mortgage that says the bank can change the locks on the house if it is "abandoned". 

A-T-T-O-R-N-E-Y Spells T-R-O-U-B-L-E in Short Sale  -

Sad Facts about Attorney Misconduct in a Short Sale

FLORIDA FORECLOSURE FRAUD BILL - MY LETTER TO GOV. CRIST  

See UPDATE to this blog and how it was resolved - at FLORIDA FORECLOSURE FRAUD BILL - UPDATE

SHORT SELLER STILL MUST DECLARE INCOME ON SALE!  -

The Mystery of income you can't spend - but do you have to declare it?  When DON'T you have to report forgiven debt (from a short sale, deed in lieu or foreclosure with release from the lender) as income?

CALLING ALL ETHICAL LOAN OFFICERS - HELLO? ANYONE THERE?

CREDIT REPORTING AND SHORT SALES / FORECLOSURES - REVISITED -

I received an email on my quest to find the real answers to the incessant question of how a foreclosure vs. short sale vs. deed in lieu all affect the credit report of the borrower.

1099 REPORTING - IT'S THE LAW! - OR IS IT???  -

1099 SHORT SALE REPORTING - IT'S THE LAW! - OR IS IT???  Since I have developed my SHORT SALE law practice I have a lot of clients that are in foreclosure or close to it.  They all ask me about 1099 reporting and if the bank can forgive the debt and not issue a 1099.  Now let's see what the law really says.

DIVORCE - CHAINS TO THE UPSIDE DOWN HOUSE VALUE CAN BE BROKEN!!!  -

Chained to your home and can't get a divorce?  You are not alone! 

SHORT SALE FLIP - QUESTIONABLE METHODS  -

SHORT SALE FLIP - QUESTIONABLE METHODS - This article is a follow up to an issue discussed in December titled Short Sales and Title Insurance - Critical Look at Hybrid Closing Schemes.

FORECLOSURE DEFICIENCY ORDER VS SHORT SALE NEGOTIATED PAYBACK  -

  I was negotiating on a very large problem mortgage today with a high-up executive at the servicing firm.  He made a comment that I thought peculiar and I called him to task on the matter. The comment was that "after the foreclosure sale, lenders seldom bother to get a court ordered deficiency judgment".  I knew this to be false, because lenders today - more than in the past - are investing a few hundred more in attorney fees to get a deficiency judgment.  I will tell you why.

REAL QUESTIONS - HOW DOES A SHORT SALE AFFECT CREDIT SCORES???  

In a discussion today with a client we addressed the question of credit scores and short sales.  This is a hot topic and there is information everywhere on what happens and when and for how long. 

FORM RELEASED BY IRS FOR DEBT RELIEF ACT FILING -

New IRS Form for Filing for Debt Relief

No-Conflict Considerations in Short Sale Fees

As short sales and pre-foreclosure assistance servicers proliferate, the type, style and amount of fees that these individuals and companies charge has become ingenious and varied.  This article discusses the rights and wrongs regarding the most popular of the charging methods.

TOO MUCH MONEY IN THE BANK TO DO A SHORT SALE? - ECONOMIC LOGIC  - 

This week I spoke with several people that wanted to do a short sale of investment property that is upside down in value.  They are sick and tired of the short fall on rental income (if they are lucky to have a renter that actually pays rent) vs the mortgage payment, taxes, insurance and maintenance costs.

Who Says Owner Doesn't Have Time To Do a Short Sale? -

Some writers to my blogs have commented that "they don't have time to do a short sale". 

WHAT DO I DO? -- I'M UNABLE TO PAY MY MORTGAGE  -

As an attorney, I receive plenty of telephone calls and visits from people that are no longer able to pay their mortgage on their home or investment property.  They all have endless questions and usually tell me they are getting all sorts of advice that they don't like.  They come to me to find their BEST solution.

SHORT SALE TRILOGY  -

It is really amazing how many people - professionals as well as potential sellers - do not even know what the term "short sale" means.  This blog assumes you have actually worked a short sale already -- if you have -- or if you are curious -- read on!

Mortgage Forgiveness Debt Relief Act of 2007- Another Look -

I have been getting a lot of calls and emails about the Mortgage Forgiveness Debt Relief Act of 2007.  The new law became effective today, and applies to 1099's on short sales or foreclosures retroactive to January 1, 2007.

MORTGAGE RELIEF ACT - CHRISTMAS PRESENT TO PRIMARY HOMEOWNERS -

On Thursday the President signed into law - effective New Years Day, the Mortgage Forgiveness Debt Relief Act of 2007.

Underwater - The Cycle Repeats Itself -

I cannot be surprised at the stories in the newspapers about homeowners, investors and even commercial property owners being "Underwater" with today's depressed real estate market values.  Many people that own real estate today were just pre-teens when the last deep cycle occurred.  Or if they are older, they were not in the real estate market at that previous time.

Short Sales and Title Insurance - Critical Look at Hybrid Closing Schemes -

Recently I have seen various schemes for streamlining the short sale process for the buyer/investor.  Some discussions have been somewhat heated and involved concepts like dual contracts or even insolvent borrower creating a Land Trust for use by the investor/buyer.  At best, the agreement amongst the blog commentors has been to agree to disagree.

WHO CONTROLS THE SHORT SALE? -

In this environment of the short sale it seems apparent that the bank controls the sale.  Some might say the buyer controls the sale.  My opinion is that both statements are primarily incorrect.  The seller owns the house.  The seller must sign the contract.  The seller must sign the deed. 

TAX DEEDS - COURT DEVELOPMENTS NIX SALE! -

Tax Deed purchases are popular in many states as a way to acquire real estate at truly rock bottom prices.  Generally a tax deed purchase is first in line after just a few significant "super" lienholders: (1) God, and (2) Code Enforcement Liens.  Practically all others having an interest in the property are wiped out in a tax deed sale.

LOW BALL SHORT SALES - PLAYING THE ODDS? -

Short Sales are the buyer road to riches - if you believe the promo advertising that is all over the place.  But the road is not a short one nor is it a smooth one. It is best covered with professional help and guidance.

BORROWERS FACING FORECLOSURE OFTEN OVERPAY - STUDY FINDS

Is our system of foreclosure out of control?  Are the banks acting fiduciarily to their borrowers in the loan management process - are they requred to?

Beware the White Knight! -

Apparently there are lots of "White Knight Claims" being made against title insurance policies.  Here are some of the fact patterns:

SHORT SALES AND IRS LIENS -

In my law practice we see a lot of short sales.  Indeed, we offer a service to Realtors and Sellers to process their short sale material with the lenders (without the downward pressure and lowball influence from an investor handling the process).  I have worked statewide with lenders - visiting their loss mitigation departments and sitting in on committee meetings.  Knowing the process is key knowledge to improving the percent of short sale lender approval.

TRUE STORY - Renter forges deed, then conspires to sell house and pocket mortgage proceeds -

It is a day past Halloween, but here is a scary TRUE story

Some Sellers Think They Are ENTITLED To A SHORT SALE -

I had just too many borrowers that "should have known better" in the office this week - so I feel very conservative just now.

---------------------------------------------------------------------------------------------------

Copyright 2007, 2008 and 2009, Richard P. Zaretsky, Esq.

As an attorney I often consult with homeowners that are in distress along with the Realtors that represent them in trying to accomplish a short sale.  Often a detailed explanation of the foreclosure process would be very worth while for my client to have a thorough understanding of what they may be facing as the lender seeks to enforce the promissory note and mortgage.  We usually don't have enough time to explain the process in full, so here is an article that should help non-lawyers understand what is happening according to rules of procedure in the court system and what options lenders have for enforcing the money they loaned to the homeowner.

The Promissory Note - the obligation to pay back the borrowed money -

In the beginning there is a PROMISSORY NOTE.  This is a promise to repay money that is being given by the HOLDER, usually a bank or LENDER.  To be sure the promissory note is repaid the HOLDER wants some collateral.  The collateral could be anything from your heirloom watch to your car, but for our discussion purposes it will be your house. 

The Mortgage - the collateral of your promise to pay back the borrowed money -

The typical way to provide the collateral of your house to the HOLDER of the promissory note is to sign a MORTGAGE.  The mortgage is not a promise to pay any money.  It is merely the promise that if the promissory note is not paid according to its terms, the HOLDER of the promissory note has the option of selling your house and taking from the proceeds of that sale only enough money to pay back the promissory note, giving to you the balance of any excess money from that sale.

Why do I get sued if I don't pay the money to the Lender?

Understand that the HOLDER does not have to use the mortgage to collect on the payments unpaid on the promissory note as there are other collection methods.  For example, the HOLDER can just sue on the promissory note and get a money judgment against you for not paying according to the terms of the promissory note.  That money judgment can then become a lien upon all of your property, both real estate and non-real estate, and (with certain exceptions) the HOLDER can then have the Sheriff sell your real estate or non-real estate assets until the funds raised are enough to pay off the promissory note.

For the purpose of this explanation let's assume the other route of enforcing the obligation to pay the promissory note is used and that is the commonly used "Foreclosure" or more appropriately termed "Mortgage Foreclosure".  In the mortgage foreclosure the HOLDER takes the option of using the collateral of your home (in the example above) and elects to have it sold at (in Florida and most other states) a public sale conducted by an officer of the court, usually the Clerk of the Court in the county in which your house is located.  At the foreclosure sale there is the opportunity for the public and the HOLDER to bid on the house and the house is then sold by the Clerk to the person that bid the highest amount.

The Foreclosure Sale Bidding Process-

This bidding process is confusing because you often hear that the Lender (HOLDER) got the house at the public sale for just $100.  The bid of $100 is usually the opening minimum bid at a public sale.  The reason for this is that there was no public interest in the house, usually because the judgment in the mortgage foreclosure is higher than the value of the house being sold.  To understand why the HOLDER then only bids $100 and no one else bids at the public sale, you need to understand that the HOLDER, having been awarded a foreclosure judgment against the house (not against you as the borrower) is entitled to bid on the house at the sale and the HOLDER can "credit bid" up to the amount of the foreclosure judgment.  This makes sense because why should the HOLDER, who is already owed money, have to actually pay the Clerk for any bid it makes if the money would only go right back to the HOLDER?  So the court rules allow the HOLDER to just bid any number up to the amount the judge set in the foreclosure judgment (being the amount owned to the HODLER under the promissory note).  So if no one else bids on the house at the sale, the bidding starts and ends at the $100 and the winner of the bidding is the HOLDER, who then gets the title to the house.

The Meat of the Foreclosure Process -

Now that we have dealt with the very beginning and the very end of the foreclosure process, let's get into the middle of the foreclosure process.

1.  Notice that you are Delinquent:  The foreclosure warning letter is usually the first stage of the foreclosure sale.  This letter is not the letter that you owe a late fee because you did not pay by the 15^th of the month.  The foreclosure warning letter is usually after you are 60 or 90 days late on your payments.  It usually precedes the filing of the complaint for foreclosure by 30 days, but currently that time period can be much longer.  This letter could be written by the HOLDER or by the HOLDER's attorney and it usually demands the payment of the full amount of the delinquency and some letters could announce a full acceleration of the amounts due, including the principal amount of the promissory note.  If you don't pay the money demanded to the HOLDER, the foreclosure complaint will likely follow.  This letter may also include a suggestion that you contact the lender and see if a modification, deed in lieu, short sale or other assistance to your problem of paying the mortgage may be available and appropriate for you.  Whatever you do however, understand that unless you pay the mortgage arrearage in full, the mortgage foreclosure process is likely going to continue!

2.  The Foreclosure Complaint and Lis Pendens:  The foreclosure complaint is a document that tells the court that you signed a promissory note and did not pay it, and you also collateralized the promise to pay the promissory note with a pledge of collateral (a mortgage) of real estate, in this case you house.  Some people call this the "lis pendens".  In reality the lis pendens is a document that is filed in the court file and also recorded ("filed" and "recorded" have different meanings) in the public records of the county where the real estate is located.  The lis pendens mean literally "litigation pending" and it identifies who is involved and what property is involved.  Some people think it is a lien on the house, but in a foreclosure litigation situation, the mortgage itself is the lien and the lis pendens is just a notice to the public that a lawsuit is filed, thus alerting anyone that would be buying or otherwise dealing with the identified real estate that its disposition is subject to a lawsuit.  There are some issues of priority of liens that could be part of this discussion, but it is not necessary for the answering of your question.

3.  Summons and Service of Process:  The foreclosure complaint is provided to all of the defendants by "service of process" and usually that is accomplished by the delivery of a "summons" to each defendant.  The summons says that you have a certain number of days to respond to the complaint filed in the court or a default will be taken against you.  Let me mention a few things here:

            a. If you are named a defendant in a foreclosure complaint it is because of one of three reasons: (1) you owe the money to the Holder; (2) you are owned money by the Borrower; (3) you are in possession or have a right of possession (like a renter) of the property described in the mortgage.  If you are in category 2 or 3 you are not subject to owing money as a result of the lawsuit and the complaint is filed against you only so the mortgaged property can be sold free and clear of any claim you have or may have to the property named in the mortgage.

            b. If you don't answer a complaint within the time period stated in the summons, a default will be entered by the court.  The default is in effect an admission of the things stated in the complaint relative to your name and relationships in the complaint are all true.  What this then means depends on what the complaint says concerning you.  If you are a tenant for example, it means that the mortgage is a lien on the property superior to your right of possession.  A discussion on foreclosure defenses is for another article unto itself, but they can include violations by the Lender of various regulatory rules.  I have two caveats in regard to defenses: (1) don't confuse a defense with a defective foreclosure complaint.  A lost note is not a defense, nor is a lack of an assignment of the mortgage.  Both are defects in the complaint.  (2) Defenses like Truth in Lending violations or RESPA violations require the transaction to be unwound and that means you have to pay back to the lender the money they loaned to you (less certain penalties and attorney fees).  If you cannot return the money the defense becomes illusory.  Congress is addressing this issue now that the housing market is upside down, but there are no solutions yet. Learn more at my article FORECLOSURE DEFENSE FALLACY.

4.  The Timing of Pleadings: The HOLDER's attorney's procedure for a foreclosure is usually pretty much standard:  file and serve the complaint, then wait for the statutory time to answer (usually 20 days), then file a motion for summary judgment of foreclosure with the necessary affidavits and schedule the hearing, then have the hearing with the judge on the motion for summary judgment of foreclosure (which hearing usually takes less than 10 minutes), then have the judge enter the order of final judgment of foreclosure and schedule the foreclosure sale date (sometimes the Clerk has to first give the date to the judge) which date is usually no less than 30 and no more than 45 days from the hearing; then the sale date comes and the public auction of the property occurs.  It is this final event that ends the owner's ability to repay the loan. 

5.  Is the House Lost for Good?  After the sale has occurred there is sometimes a period of redemption where you can still reacquire the house not withstanding it having been sold a public auction.  This period of redemption varies from state to state.  In Florida it effectively ends when the bidder at the foreclosure sale pays the full amount of the bid to the Clerk of the court.  There can be legal objections to the sale based on irregularity or other technical infirmities and in Florida this must be brought to the attention of the Court within 10 days of the sale of the property at foreclosure. The judge then has a hearing on the issues and either sets the sale aside and orders a new sale or the judge confirms the sale and orders the Clerk of the Court to issue a deed to the successful bidder.

6.  Attacking Errors in the Procedure: An appeal can be taken from a judgment of foreclosure but it must be timely.  In Florida the time to take the appeal is 30 days from when it is rendered.

7.  Deficiency Judgment or Surplus Funds?  After the foreclosure sale, if the Lender got less than it was owed it can file a motion to have the court award a deficiency judgment against you as the borrower. How this amount of the deficiency is determined is usually the difference between the foreclosure judgment amount and the market value of the home at the time of the foreclosure public sale.  An in-depth discussion on the procedure is covered in Foreclosure Deficiency Judgment Compared to Deed In Lieu and Short Sale Scenarios.

7.1 After the foreclosure sale, if the Lender got what it was owed there is probably more money left over.  This occurs when the amount of the foreclosure judgment is less than the amount bid at the foreclosure sale.  This excess money or "overbid" is called the "surplus" and it very well may belong to the borrower!  To get this money the borrower must file a motion to the Clerk (sometimes the Court) to get the money.  If there are other creditors that have judgments or liens on the house (like a second mortgage holder) those people could have a superior claim to the surplus money.  Usually you can apply for these monies without an attorney, but if there are other claims or if you are uncomfortable with the process an attorney should be able to get the matter resolved with just a few hours of work.

This is a lot to digest and frankly I could have been much more detailed.  You are probably asking yourself how long this whole process takes.  Before the current deluge of foreclosures the courts and the attorneys were not that busy so things pretty much went about as fast in Dade County as they did in Flagler County.  But today the whole system is over taxed with more cases than is humanly possible to process according the "fastest time" scenarios allowed by the Rules of Court.  What was once typically a 100 day process can now easily be twice that or more.

Copyright 2008 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader. 

SEE A TABLE OF CONTENTS OF MY ARTICLES AT Need Short Sale Information? - These Articles Probably Answer Your Question

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com  New Website www.Florida-Counsel.com. See our simple access to Short Sale and Foreclosure articles on Activerain at TABLE OF CONTENTS - RICHARD ZARETSKY SHORT SALE ARTICLES - 11/1/08