Articles Posted in Deficiency Waivers and Lawsuits

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If you closed on a short sale in the last five years and did not obtain a waiver of the unpaid balance owed to the first mortgage holder, you are at risk of now being sued for the difference – called a deficiency balance.  This could be for tens or hundreds of thousands of dollars.

Lawsuits for deficiency judgments are likely to pick up in Florida following a recent case which held that the statute of limitations is five years following the short sale rather than the one year after a foreclosure sale.  We were afraid this might happen and we advised our clients during the height of the short sales not to close without a deficiency waiver.

So any short sale that occurred before mid 2012 would be safe, those short sales that closed after mid 2012 are at risk.

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Tax breaks
We’ve had some of Tampa Bay Florida clients ask us what the forgiveness act means to them and if it applies to them and I thought the following summary may help others as well:

This legislation that was just signed into law and good through the end of 2016 now applies to cancellation of debt on the borrower’s  principal residence –

Some brief info from the IRS website:

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judgment.jpgIn the past year, Floridians have been hit with ten thousand or more deficiency lawsuits by Dyck-O’Neal, a collector hired by Fannie and Freddie to go after unfortunate homeowners. Many defaults have been obtained against homeowners which should not have occurred due to lack of personal and/or subject matter jurisdiction. Many folks did not even know these additional lawsuits have been filed against them. A recent New York Times article recently addressed this focusing on the ability of Dyck-O’Neal to go after deficiencies even in cases in which the underlying foreclosure action was suspect.

Some defenses raised by defense counsel in these cases are now hitting the appellate courts. In one such case decided May 1, 2015, Reid v. Compass Bank, 1D14-930 (Fla. 1st DCA May 1, 2015), the First DCA affirms the rule that a plaintiff in a foreclosure case cannot file a new lawsuit to seek a deficiency if the foreclosure court reserved jurisdiction for the purpose of entering future orders relating to the foreclosure.

“Notwithstanding the fact that First Federal Savings supports the argument that a party is not entitled to pursue an action at law on a promissory note where that party includes a prayer for a deficiency judgment in its foreclosure complaint and the trial court reserves jurisdiction to enter a deficiency judgment, we have determined that affirmance is warranted in this case based upon the circumstances presented.”

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money palm tree.jpgMortgage companies in Florida must think money really does grow on trees as they are now suing for deficiency judgments on past foreclosures of homes. July 1, 2014 was the deadline in Florida for lenders to file deficiency lawsuits for foreclosure Judgments issued between July 1, 2009 and July 1, 2013. This is the result of the foreclosure bill last summer drastically dropping the number of years for a mortgage company to sue for a deficiency from five years to only one year.

So we’ve seen a flurry of filings from a couple groups: Dyck-O’Neal, Inc. and Collins Asset Group. The approaches have differed somewhat, Dyck-O’Neal files new actions for primarily FNMA while Collins substitutes plaintiffs and simply files a motion in an existing case that is likely re-opened to do so. Until recently, actions seeking a deficiency have been limited mostly to small local banks or credit unions. The Washington Post described Fannie and Freddie filing more deficiency actions through debt collection firms such as Dyck-O’Neil in order to stop strategic defaulters and try to collect debts on behalf of taxpayers. However, Dyck-O’Neal has been sanctioned in Georgia and Texas for improper actions.

Former Florida homeowners are just learning of this now when they are being served by process servers with a summons or a motion for deficiency judgment. Just when they thought their problems were behind them noted a recent Marketplace article.

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courthouse.jpgUnder Florida law, a creditor has up to twenty years to try and collect a judgment. That’s an intimidating number, two whole decades. Something not to take lightly. To become a lien on real estate, a certified copy of a final judgment must be recorded in the public records in the county in which the real property is located.

Once recorded, Florida law provides that the judgment acts as a lien on non-homestead real property for an initial period of ten years. See Florida Statute Section 55.10. The judgment can be re-recorded and act as a lien for an additional ten years. Prior to 2004, a recorded judgment acted as a lien for only seven years, but could be re-recorded up to two additional times for a total of twenty years.

In comparison, a bankruptcy remains on someone’s credit report for 10 years. However, the last 18 months is the most important time period in anyone’s credit history and often the bankruptcy after it gets old enough is considered irrelevant.

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lawsuit.jpgIn Florida, typically someone who is sued is served with the lawsuit and given 20 or sometimes 30 days to file a response. If the lawsuit was filed in small claims court, you are given a date to appear at a pretrial conference instead of filing a written response.

The most important thing is: Don’t ignore the deadline. It doesn’t matter that you think you might be able to work it out or that you called the attorney’s office who filed the lawsuit. If you don’t file a timely written response with the court, or attend the pretrial conference, a default will be entered against you. A default judgment can last up to 20 years in Florida and is very hard to challenge.

Before the deadline expires, please see an attorney. Many attorneys, including our office offer a free consultation for foreclosure defense or debt collection matters.

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house money.jpgHere’s an example in Tampa, Florida this month for one of our foreclosure clients who wanted to keep her house and avoid the possibility of a deficiency judgment:

New monthly payment: $933.45 with escrow Old monthly payment: $1,491.35

New interest rate: 4% fixed Old interest rate: 7.75 % fixed

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short-sale seesaw.jpgBloomberg today reports that banks are offering as much as $35,000 to delinquent homeowners to sell their home in a short sale. In doing so, the banks avoid the costly foreclosure process especially when their loan documents are questionable and perhaps fraudulently prepared. I imagine we will be seeing a few of these in Florida, a judicial foreclosure state with particularly well trained and knowledgeable foreclosure defense attorneys.

JP Morgan Chase reportedly is sending out letters to borrowers offering up to $35,000. They are also offering deficiency waivers for the balance.

So open the mail – and ask your lender what move out incentives they are offering for a short sale. Perhaps you have more negotiation strength than you think. But don’t let the mortgage company get a default against you – it will both weaken your position and will allow the foreclosure to proceed against you at a faster pace eliminating your short sale opportunities.

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short sale.jpgWhen listing and selling a home in a short sale, homeowners should consider including language to limit recovery of any unpaid amounts by the mortgage company (known as the deficiency balance). In Florida, we recommend this limitation be placed in the Purchase and Sale Contract. This way when the lender/bank agrees to the short sale, they are in essence agreeing to the terms of the contract between the buyer and seller. It is no different than if you wrote in “as-is” to limit your liability as to the condition of the property. I’d recommend something like the following be inserted into the contract:

The sale of this property is contingent upon the lender’s acceptance of all sale/purchase contract terms including a complete discharge/forgiveness of debt of any remaining deficiency amounts on the loan. Accordingly, the bank’s acceptance of this short sale agreement will constitute payment in full of both the first and second mortgage notes on this property and represent a waiver of any future lender right to pursue an action and/or judgment against the owners/borrowers to recover any deficiency amounts arising from this short sale transaction.

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underwater mortgage.jpgHave you been considering walking away from your house payments and mortgage? According to a recent CNN article, many homeowners are getting ruthless and voluntarily choosing to walk away. We are seeing this more and more among our foreclosure defense and short sale clients. Sometimes it is better to take the credit hit and save money on huge mortgage payments on an underwater asset. Home values have continued to slide another 11% in Florida in February when compared to the same month in 2010. CBS MoneyWatch reports that 47% of Florida homeowners are underwater.

Fannie Mae reports in a recent survey that the number of homeowners who would even consider walking away has increased from 15% to 27% this year. This is despite Fannie Mae’s threat to withhold Fannie Mae backed financing for strategic defaulters that it made over a year ago.

So what should you consider before you make such a decision? Well, first of all, if you have a good job, assets and a strong credit report, you can be a target for a deficiency lawsuit later down the road as Florida is a “recourse” state. Banks and other owners of mortgage debt have up to five years to pursue you to collect the unpaid balance. The question is will they? If you look good to them on paper, it is more likely you will be sued for a deficiency. If this is the case, or you think your finances will pick up over the next few years, you may want to consider a short sale to at least try to open negotiations for a full or partial deficiency waiver. Alternatively, many clients elect to file bankruptcy now while they qualify to order to obtain closure and gain the certain knowledge that they cannot be sued later.
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