Foreclosure

The Foreclosure Process

In Florida, lenders may foreclose on a mortgage in default by using the judicial foreclosure process. This is commenced by filing a lawsuit in the Circuit Court in the county where the property being foreclosed is located. Again, this is a judicial process – there is not a non-judicial foreclosure process in the State of Florida.

As in any lawsuit, the borrower must be served with notice of the lawsuit and must be given an opportunity to appear and defend his or her rights. The lender will try to show that the borrower is in default, and that foreclosure is therefore necessary under Florida equity law. The Florida legislature has passed very few statues regulating foreclosures. The legislature's mortgage foreclosure effort may be viewed Florida Statutes, Chapter 702.01, which is the statutory scheme that regulates mortgage foreclosures in Florida. Most of the law on the subject of foreclosures in Florida is found within cases that have been decided before Florida's judges. Some of the highlights of both the Florida Statutes and judicial decisions are set forth as follows:

• An Equitable Action. In Florida, all mortgages shall be foreclosed in equity, not at law. This means that the foreclosure claim shall be tried to a judge – Florida residents are not entitled to a jury trial in a mortgage foreclosure action. As such, if any counter-claims are filed by the borrower-homeowner, the court shall server for separate trial all counterclaims against the foreclosing mortgage. The foreclosure claim shall, be tried before the court without a jury. Counterclaims brought by a borrower-homeowner may be tried to a jury, but they must be tried separately from the main foreclosure lawsuit.
• No Injunctive Relief for Borrower-Homeowner. In Florida, because the lawsuit to foreclose on a borrower is a suit in equity, it is impossible to obtain an injunction to stop a court ordered sale. A sale can be set aside if there is an error in the procedure to foreclose. The sale, however, cannot be set aside due to a low sale price. The court order commanding foreclosure will specify how the foreclosure must take place, and the foreclosure must take place on those terms.

Pre-Foreclosure Timeline

• Mortgage and Note. When you purchased your home you signed many documents at closing. Two of those documents were the Mortgage and the Note. The Mortgage pledges the property as security for the debt which is owed to the bank. The debt is determined pursuant to the terms of the Note. In other words, the Note is basically your promise to pay. The Mortgage is the tool the bank uses to take back the property in the event you do not pay.
• The Notice of Default. As a borrower, you have promised to make your mortgage payments, pay your taxes and insurance, and pay your homeowner association fees. If you fail to do so, pursuant to the terms of the Note and Mortgage, your lender may declare you in default of your Mortgage. Declaring that you are in default is the beginning of the foreclosure process.
• Disputing the Validity of the Debt.
• Opportunity to Cure.

Foreclosure Litigation Timeline

• The Filing of the Lis Pendens. The first legal action taken by the lender is to file a Lis Pendens at the county courthouse. The term "Lis Pendens" means "litigation pending" and puts the public on notice that a law suit has been filed against you. Your lender has declared you in default and is demanding that the note be paid in full immediately. The Clerk of Court records the Lis Pendens in the Public Records and then you are served with a Summons, commencing the lawsuit against you and giving you time to Answer.
• The Summons and Service of Process (10 to 20 days). After the Lis Pendens and Complaint have been filed, a process server (typically a County Sheriff) will deliver to you a copy of the Complaint filed against you, the Lis Pendens and the Summons. The Summons is the document that details your rights and responsibilities associated with the lawsuit that has just been filed against your for breach of contract (promissory note) and the Mortgage Foreclosure. It is not advisable to "hide" from the Sheriff. There are alternative ways that the lender may obtain sufficient service of process other than handing it to you (i.e., publication in local paper after diligent search).
• The Answer (20 days). In response to the Lis Pendens and the Complaint, you have 20 days from receipt of your Summons to file your Answer with the Clerk of the Circuit Court. An Answer is a legally sufficient response to the allegations that have been alleged against you in the Complaint. An Answer is not "I've been laid off from work and cannot make my payments." In the lender's (and Court's) eyes, this is an insufficient excuse and does not justify your lack of payment. Instead, an Answer might be, "I never had a mortgage with this lender. They have confused me with someone else." Alternatively, "I have made all my payments and am not in Default" would also be an adequate answer and potential defense. It is an opportunity to show why you shouldn't be foreclosed upon.
  
  And Answer may be filed by you or by your Attorney. If you file an Answer (and it is usually a good idea to do so) a hearing date is set. At the hearing the lender's attorney will be present and you may tell the judge the reason for your Default. By filing an Answer, you have insured that a Clerk's Default and a Default Judgment will not be entered against you without an opportunity to be heard.
• The Preliminary Hearing. You may present your case at the hearing and the judge will decide what to do next. If you have a valid Answer, the judge may require the lender to give you a reasonable amount of time to work things out. If you simply haven't made your payments, however, the judge will rule in favor of the lender and the foreclosure will go forward.
  
  The good thing about the hearing is that it sometimes takes some extra time to be scheduled. And, let's say you are trying to use a short sale to save your credit, this extra time may be important.
  
  If you do not file an Answer within the 20 day period or if the judge rules against you at the hearing and doesn't allow you more time, the lender's attorney will file a Motion for a Summary Judgment Hearing. This is another hearing which will be scheduled before the judge. It could take place in a few days or weeks depending on how busy the judge is and how aggressively the Lender's attorney acts.
• The Summary Judgment Hearing (45 days). At the Summary Judgment hearing, the Lender's attorney will present the case against you. You may give testimony if you are present to try and create dispute as to a material fact in the case. Mort times than not, providing proof of payment is the alleged defense that would provide you the greatest likelihood for success at this hearing. Without such evidence, the judge will most likely rule against you and find you in default of the mortgage and will grant the lender the right to foreclose the Mortgage and sell your property. The Final Summary Judgment will show the amount you owe the lender including principal, interest, attorney fees, expense, and court costs.
• Foreclosure Sale Date (75 days). After Final Summary Judgment is entered, next the Judge will set a foreclosure sale date which is usually 30-45 days after the entry of the Judgment. This is when the property will be sold on the Courthouse steps. This date is sometimes extended due to legal holidays or by agreement of your lender.
• Redemption by Junior Lien Holders. At the discretion of the court, junior lien holders can redeem the property, up to the time of the confirmation of the sale. The equity of redemption is cut off when the sale is confirmed, but it exists prior to that time, which means the borrower can save the property from foreclosure by coming up with the money before confirmation.
• Judicial Sale, Advertisement and Certificate of Title. The court order of foreclosure will specify how the foreclosure must take place, and the foreclosure must take place consistent with those terms. Whenever a legal advertisement, publication, or notice relating to a foreclosure proceeding is required to be placed in a newspaper, it is the responsibility of the lender or their representative to place such advertisement, publication, or notice. After the sale takes place, the sale terms must be confirmed by the court that ordered the sale. If the terms of the sale order are met, title in the buyer's name can become complete by filing a certificate of title.
• Deficiency Judgment. The lender may sue to obtain a deficiency judgment in Florida. A separate action for a deficiency must be filed within four years after the foreclosure sale.

Contact DISPARTI LAW GROUP, P.A. about your legal matter today!

Deed in Lieu

Your Options. As a homeowner, once you have made the decision that you either cannot afford the real estate or that you no longer want to keep the property and keep servicing the debt, you have a few options.

1. Do Nothing: Foreclosure
2. Bankruptcy
3. Short Sale
4. Deed in Lieu

One, you can do nothing. In such case, sooner than later, the mortgage company will file a foreclosure action against you. Two, you can immediately consider filing either a Chapter 7 Liquidation or a Chapter 13 Reorganization to eliminate or greatly reduce the debt associated with the home you are surrendering. Three, you can consider a Short Sale if you have someone willing to put in an offer on your property. Or four, you can try to negotiate a Deed in Lieu of foreclosure.

Defined. Basically, Deed in Lieu is similar to a voluntary repossession. You are signing over the deed or "title" to your property and the lender agrees to cancel the mortgage. In other words, the typical deed in lieu of foreclosure is a consensual transaction – you have complied with a long list of requirements placed upon you by the lender, they have evaluated your facts and circumstances and, after great deliberation, a long time and a little bit of luck, they agree to take back the real estate instead o suing you! Typically the lender draws up the Deed in Lieu of Foreclosure Agreement which must be signed by the grantor / homeowner, witnessed by two people and notarized. Upon execution, the deed in lieu must then be delivered to the grantee / lender. The deed is also typically recorded at the local clerk of court in the public records.

The process, however, isn't as always as clean-cut as it may appear. For instance, the lender typically reserves the right to seek a deficiency judgment against you, the borrower / homeowner. Once the lender takes possession, the property (i.e., REO) will be put up for sale. Unless otherwise stipulated in the Deed in Lieu of Foreclosure agreement, the lender may come after you for the unpaid debt.

Specifics Requirements. Generally speaking, there are certain guidelines that must be followed before the lender will consider the Deed in Lieu. It should be noted prior to engaging in a consensual deed in lieu that they are not "easy" and as a general rule, fail more times than they succeed. They are:

• The borrower must have suffered a hardship such as loss of job, sickness, dissolution of marriage, etc;
• The property is generally an individual's former homestead; the Deed in Lieu of Foreclosure is generally not for abandoned properties or investment properties;
• The borrower must have exhausted other options / financial resources;
• The property must have been on the market between 90 and 180 days;
• There cannot be any other liens on the property;

The property must be left in clean condition and sometimes the lender requires an inventory & a statement of condition;

Income Tax Consequences. There are income tax consequences to consider with the Deed in Lieu of Foreclosure. The IRS often gets involved with Deed in Lieus, because the deficiency that results from the ultimate sale is typically forgiven. In such case, this forgiveness is seen as a relief of debt and may be treated as income. Please consult with your with your accountant or tax advisor for specific details.

NOTE: On December 20, 2007, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which will help Americans avoid foreclosure by protecting families from higher taxes typically assessed from the forgiveness of indebtedness. This Act will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed.

BENEFIT: This Act will increase the incentive for borrowers and lenders to work together to refinance loans and allow American families to secure lower mortgage payments without facing higher taxes.

Short Sale

A short sale in real estate occurs when the outstanding obligations (loans) against a property are greater than what the property can be sold for. Short sales are a way for homeowners to avoid foreclosure on their homes and still be able to pay off their loan by settling with your lenders.

Do I need to Hire an Attorney? Falling behind on your mortgage payments and trying to come up with a solution to the problem can be an extremely stressful. Therefore, in many circumstances, it makes sense to consult with an attorney about you property and the potential solutions that are available to you, including a short sale. While it is certainly not a requirement to have an attorney, it is wise to consult with one. The attorneys at Disparti Law Group, P. A. understand not only short sales, but all of the potential solutions available to you and which may best serve you. We therefore recommend that you contact an attorney to assist you.

Value of Property. First, you must determine the value of your property. If you are selling the property through a real estate broker, your broker will help provide you with an estimate of your home's market value. If you are selling the property yourself, do your own market analysis of the area (i.e., comparable sales on comparable homes) and your property.

Estimate Closing Costs. Next, you will need to estimate your closing costs by adding up all the costs of selling the property. If you are using the services of a real estate broker, the broker will provide an estimate of closing costs. If you are selling the property on your own, call a local title company or real estate attorney and ask, as a seller, what the closing costs will be.

Lien Balance(s). Determine the amount owed against the property. This will be the total of all loans against the property. This my be best be accomplished by locating the outstanding balance of each loan on a recent statement. It should be noted that some loans will have pre-payment penalties which could increase the balance outstanding if sold prior to a certain date. Additionally, if you have been past due on any of your loan payments, the lender likely has the contractual right to charge late fees and, if delinquent enough, attorneys' fees and costs to enforce their rights.

Calculate the Deficiency. Do the calculations. Subtract the total amount owing against the property from the estimated proceeds of the sale. On a short sale, this will be a negative number, called "the deficiency."

Contact Lenders. At this point, it is time to contact your lenders and speak to someone in their "loss mitigation" department or their customer service department and tell them the situation and your desire to engage into a short sale. They may direct you to another department or individual to assists in these situations. Talk to a supervisor or manager if possible; this person will have more authority.

Specific Requirements. Ask the lender what its procedures are for a short sale. Some lenders are willing to work with you by reducing the amount owed or making other arrangements. Others will look to the agents involved (if any) or anyone else who's making money off the transaction to see if they are willing to make concessions to make the transaction happen. Still other lenders will tell you that your debt is your responsibility, one way or the other. Generally speaking, lenders require the following:

• Hardship Letter
• Income & Expenses (last two months)
• Listing Agreement (typically six months)
• Listing Price & History
• Broker contact Information
• Offer
• Proposed HUD-1 Statements

These again are documents that the lender typically requires before considering a short sale. The list and supporting documents will vary from lender to lender.

Sell the Property. Assuming that you have been able to gather everything required for the short sale, now you only have left to do one thing: Sell the property!

Tips & Warnings. Below are several tips and warnings you should consider before you enter into a short sale arrangement.

• Closing costs will include title and escrow fees (if the seller is responsible for any portion of them, which will depend on your county), attorney fees, a portion of unpaid property taxes, re-conveyance fees, notary fees, delivery fees, documentary fees and/or transfer fees.
• If you sell the property without the assistance of a real estate broker, you will save the amount of the commission and have more to apply toward paying off your loan.
• If you feel more secure having a real estate broker handle the transaction, consider using a discount broker to market your property. You could also try to negotiate the sales commission with your broker.
• Remember that the amount on your monthly loan statement does not include accrued interest. Interest is accrued until the date a loan is paid off, so you may have as much as 30 days of interest on top of the balance owing, and you'll need to include this interest in the total payoff amount.
• If a property is sold under a short sale, the lender may require the buyer to make up the difference, either through a personal obligation or a collection.
• The IRS often gets involved with short sales, because they are seen as a relief of debt and may be treated as income. Please consult with your with your accountant or tax advisor for specific details.

NOTE: On December 20, 2007, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which will help Americans avoid foreclosure by protecting families from higher taxes typically assessed from the forgiveness of indebtedness. This Act will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed.

BENEFIT: This Act will increase the incentive for borrowers and lenders to work together to refinance loans and allow American families to secure lower mortgage payments without facing higher taxes.

Forced Deed in Lieu

Typically, a Deed in Lieu of foreclosure is a consensual transaction. In other words, it is a process and result that is agreed to by the lender. As discussed under the Deed in Lieu section of our website, the process can be challenging and unfortunately is unsuccessful more times than not. Therefore, while it should be considered, homeowners should familiarize themselves with all of the options at their disposal, including a "forced" deed in lieu of foreclosure.

Defined. The term "forced" deed in lieu of foreclosure, or FDIL, is a bit of a misnomer. Essentially, the forced deed in lieu is a product of creative advocacy born out of tough fact patterns brought by numerous homeowners considering bankruptcy. The deed in lieu is considered "forced" not because we have any new-found law that requires the lender to take the deed instead of filing a foreclosure lawsuit. No, in fact, the lender can reject the deed and choose to file suit. We cannot guarantee that the deed in lieu will be accepted. So why then do we call it "forced?" For the following reasons:

• Forgiveness….not permission. Instead, it is called a "forced" deed in lieu of foreclosure for several reasons. First, we do not ask for permission. It is not a negotiated process where we jump through the hoops typically required, i.e., hardship letter, listed for 90 days, exhausted financial resources, etc. Instead, we draft a Special Warranty Deed in Lieu of foreclosure, sign in the presence of two witnesses, notarize and record in the clerk of Court in the County where the real estate is located. We then send the original, recorded deed to the first lien holder under a cover letter explaining why accepting this deed is in everyone's best interest, lender included.
• Transfer of Ownership. Recorded. Tender. Delivery. Benefit Received.
• Exempt Asset Analysis.
• Pre-Bankruptcy / Means Test Analysis.
• Cost Savings & Time Savings.
• Results Oriented: Cost-Benefit Analysis.

Forgiveness of Indebtedness Income: 1099-C

In accordance with the Internal Revenue Code (I.R.C.) 26 U.S.C. Section 6050P, when a debt in an amount of $600 or greater is discharged, it is a taxable gain to the debtor and imposes an obligation of the creditor to file Form 1099-C with the IRS. In other words, historically, if a debt was forgiven against a debtor, you would be taxed on the amount of debt forgiven. So, for example, if your effective income tax rate was 25% and 10,000.00 of indebtedness was forgiven against you, you would be treated as receiving $10,000.00 income, thereby owing the IRS $2,500.00!

One of eight triggering events must occur before an organization is required to file Form 1099–C.

These events are:

1. Discharge of a business or investment debt in bankruptcy.
2. Settlement of a debt.
3. Cessation of collection activity.
4. Statute of limitations raised as an affirmative defense.
5. Expiration of the non–payment testing period.
6. Election of foreclosure remedies.
7. Probate proceeding.
8. Debt unenforceable in receivership or foreclosure proceeding.

Prior to Jan. 31 of the year following the occurrence of the triggering event, the creditor must provide a statement to the debtor.

Mortgage Forgiveness Debt Relief Act of 2007

President Bush signed the Mortgage Forgiveness Debt Relief Act Dec. 20, 2007. Here's a summary of the bill's main provisions.

Income from Discharge of Indebtedness on Principal Residence

This provision is effective Jan. 1, 2007, through Dec. 31, 2009. Under this provision, which adds new IRC section 108(a)(1)(E), the discharge of qualified principal residence indebtedness is excluded from gross income. For purposes of the exclusion, qualified principal residence indebtedness is acquisition indebtedness (to buy, build or improve the residence) up to $2 million ($1 million for Married Filing Separately). The home must be owned and used as a principal residence (within the meaning of section 121). The basis of the home must be reduced (but not below zero) by any debt forgiveness excluded under this provision.

If only a portion of the loan discharged is qualified indebtedness, the exclusion applies only to the amount of debt discharged that exceeds the amount of the loan that exceeds the nonqualified indebtedness.

For example, assume that a taxpayer has a $500,000 loan outstanding on his principal residence, of which $80,000 is equity debt. If $100,000 of the loan amount is discharged, only $20,000 ($100,000 discharged debt — $80,000 equity debt) of the debt discharge qualifies for the exclusion under the new provision.

This provision does not apply to discharge of indebtedness on account of services performed for the lender. Also, an insolvent taxpayer must use the principal residence exclusion instead of the insolvency exception, unless the taxpayer makes an election to apply the insolvency exception instead of the exclusion provision.

Exclusion of Sale of Residence Gain for Surviving Spouses

This provision is effective for sales and exchanges after Dec. 31, 2007. For sales within 2 years of a spouse's death, the capital gain exclusion is increased to $500,000 if the surviving spouse hasn't remarried and the ownership and use tests were met by both taxpayers immediately before the date of death. This provision adds new section 121(b)(4).

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