Q: I am behind in my mortgage and I am afraid I will lose my home through foreclosure. What might happen if I don’t get enough of money to pay the mortgage?
A: Until the past few years, there was a fairly set pattern when a mortgage went into default. The lender would send a few letters and try to convince you to bring the mortgage current. If that did not work, the mortgage was referred to an attorney to foreclosure.
In a foreclosure lawsuit, the lender shows that it owns and holds the note and mortgage and that the borrower is in default. The court enters a judgment determining the amount owed to the lender, including costs of the foreclosure. The judgment sets a date for sale of the property if the judgment is not paid in full.
The foreclosure sale date cannot be more than 35 days after the judgment date, unless the lender consents.
After the foreclosure sale, the lender can still pursue the borrower. If market value of the property was worth less on date of sale then the amount of the judgment, the lender can obtain a deficiency judgment against the borrower for the difference. That judgment is subject to further collection effort by the lender.
Today, property values are depressed and buyers are scarce. Lenders often want to avoid foreclosure. Accordingly, you may be able to make arrangements with your lender to avoid foreclosure.
In some cases, lenders will simply allow you to skip payments for a while. Those payments may be added to the back end of the mortgage, but can provide temporary relief when illness, job or other financial problems temporarily affect the borrower’s ability to pay.
Lenders might be willing to rewrite the mortgage. The lender might reduce the interest rate. In some cases we have handled, lenders have reduced the interest rate to four percent for two years.
In rare cases, lenders will forgive part or all of the debt. This may involve sale of the property, where the sale price will not fully pay the mortgage. If the sale price is market value, the lender may prefer getting reduced payment over foreclosure, if the lender concludes it would not do better even if it owned the property, and might do worse if it could not find another buyer.
Some lenders will accept a deed in lieu of foreclosure. That means the lender accepts a deed from you in satisfaction of the debt. In rare cases, the lender even allows the former owner to stay in the house and rent it until it is sold.
If none of these options are available, you may actually face foreclosure. There are still available defenses, some of which are very effective.
Most mortgages are sold immediately after they are created. A large number of mortgages have been placed in trusts, pooling arrangements or other security arrangements under which investors can buy a piece of a large number of mortgages. As the volume of these transfers increased over the past years, many mortgages and notes were lost. In some cases, it is almost impossible to find out who really owns the mortgage.
Because of the way mortgages have been handled in the past few years, we often find that the foreclosing lender is not the lender referenced on the mortgage. We also find some lenders cannot produce evidence that they truly own the mortgage. That is a valid defense to foreclosure.
Although the lender may ultimately be able to produce evidence of ownership, raising the defense can buy time. In some cases, it has “bought” a reduced mortgage or even had the case thrown out of court.
Federal laws may be of help. The Federal Truth In Lending Act requires a notice of right to rescind fee provided to a borrower in connection with certain loans, particularly refinances of a principal residence. In the past decade, many borrowers sought to use the increasing equity in their home by refinancing their mortgage or getting an equity line mortgage. Proper notice of right to rescind was not provided to the borrower, the borrower has three years to rescind.
Other defenses or claims can be raised under Truth In Lending, such as where the lender fails to meet the notice requirements when a rate change occurs under an adjustable rate mortgage. Those claims may not allow rescission, but can prove helpful.
Many foreclosing lenders do not even follow the requirements of their own mortgages. Most mortgages require the lender to give the borrower 30 days notice before it accelerates the amount due. Many omit that step, providing an opportunity to dismiss the case on failure to meet the requirement of its own document. Although the lender might still re-file the foreclosure, it might still put you in a position to negotiate or, at least, buy you some time to sell the property or improve market conditions.
You may have defenses and claims available under the Federal Real Estate Settlement Procedures Act where the lender has charged excessive or inappropriate fees. Although claims under RESPA may not allow you to rescind or serve as a defense to the foreclosure, they can provide a setoff and possible basis for negotiating with the lender in foreclosure.
You might also have a claim under Florida’s Deceptive and Unfair Trade Practices Act. The State of Florida is suing Countywide right now based upon claims that Countywide failed to follow its own underwriting guidelines and otherwise engaged in unfair and deceptive practices to the prejudice of Florida borrowers. Fraud can also be a defense.
There are many other statutes, equitable claims and possibilities for defense and negotiation. The facts and circumstances of each case will determine what options and defenses may be available. You should discuss your situation with an experienced attorney as soon as possible.
William G. Morris is an attorney with offices at 247 North Collier Boulevard. His practice covers a broad range of subjects, including civil litigation, real estate, business and corporate law, estate planning and probate, domestic relations and contracts. He writes this column periodically with respect to legal matters that frequently affect non-lawyers. The information contained in this column is not intended as legal advice and, of necessity, is generalized. For questions about specific circumstances, the reader should consult a qualified attorney.
Questions for this column can be sent to William G. Morris, e-mail: email@example.com or by fax, (239) 642-0722.