When speaking with potential clients, we are often asked the same questions. Therefore, we thought it helpful to provide the answers to the most frequently asked questions.

Is it better to hire an attorney before a foreclosure action is filed?

We believe so.  With today’s economy and the worsening real estate market, we see that banks are more likely to provide loan modifications and workouts to qualified homeowners before a foreclosure action has been instituted.  It saves them the cost of filing fees and attorney’s fees; and they simply are not in the business of owning homes, so they prefer not to take the asset.

Once I get served, what is the timeframe to respond and what happens if I am past the time to file an answer?

In Florida, you have 20 days to answer a foreclosure complaint.  Once you are served, you should contact an attorney immediately.  If you are past the time permitted to answer a foreclosure complaint, you may still have other options, but you should contact an attorney immediately, otherwise, the bank may obtain a Default against you and then you may have no way to defend your home.  If the bank gets a Default, the speed at which they may force you out of the home is greatly accelerated compared to when you properly defend the case.

What is a deed in lieu of foreclosure?

Sometimes the bank may offer to accept a “deed-in-lieu” of foreclosure if there are no other liens on the property. The “Deed-in-lieu” is a process wherein the homeowner/borrower has defaulted on the loan, and hands over his property to the lender. The bank would then usually sell the property to recover some of the amount borrowed from the sale proceeds.  In the past, the principle advantage to the borrower was an immediate release from all indebtedness associated with the defaulted loan.  Some banks have now inserted new language that allows them to come after the homeowner/borrower for the difference between the amount owed under the loan and the amount the bank sold the property for.  This is called a deficiency.  It is crucial that you have an attorney review the paperwork to see if your bank is trying to reserve the right to come after you for a deficiency which may be several years later!  It is also important to have an attorney during the “deed in lieu” process to help avoid or minimize other potential legal and tax consequences.

What is a deficiency judgment?  Is there a way to avoid a deficiency judgment?

A deficiency judgment, as described above, is a judgment against a homeowner/borrower when the foreclosure sale does not receive enough money pay the mortgage in full.  One of our main goals is to help the homeowner/borrowed to avoid a deficiency judgment but it is not guaranteed.  For this reason, it is essential to hire an attorney to assist with a waiver of deficiency judgment to help avoid or minimize other potential legal and tax consequences.

What is the Mortgage Foreclosure Debt Relief Act?

The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 and it protects you from having a tax liability on a deficiency if the bank forgives the debt.  The forgiveness of a debt is considered by the IRS to be the same as making that amount of money.  Therefore, if your credit card company decided to forgive your $20,000 balance, it is treated for tax purposes as if you made an additional $20,000 that year.   When deficiencies are forgiven, they can be very large amounts.  Therefore, an exception to this general rule was made if it was as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.  So, investment property, commercial real estate, etc. is not included in this exception.

What is a mortgage modification?

A modification is simply any change to the original mortgage terms and may change the interest rate, amortization term and maturity date, and/or unpaid principal balance.  The changes are intended to make a more affordable payment for the borrower.  The changes need to be reviewed very carefully, because sometimes lowering the monthly amount, but extending the loan to a 40 year payback period will achieve no real net gain.  Each circumstance should be reviewed by an attorney.

Feel free to contact us for your free consultation. Rooney & Rooney, P.A.