WHAT IS A MORTGAGE ?
A mortgage is a debt agreement that is made between a person who wants to borrow money and a lender. The major difference between mortgages and other sorts of debts is that the borrower gives real estate as collateral. This collateral can be property which the borrower already owns, or it can be a property the borrower is in the process of purchasing. A mortgage on an existing property is called a ‘refinance’. Using real estate which the borrower already owns as collateral is generally referred to as a refinance, because in most cases, the new loan replaces an existing, smaller mortgage. However, the term 'refinance' is generally applied to already-owned real estate, whether or not there was a mortgage in place which is being replaced.
A mortgage loan used to acquire new property is referred to as a ‘purchase money mortgage’. It is not at all unusual for a borrower to obtain multiple mortgages on the same collateral at the same time. If this occurs, the rights of the holders of each mortgage are relative to all those ahead of them.
While there are other documents involved, the key documents in a mortgage transaction are a Note and a mortgage, or in some other states, a deed of trust. The language of the Note looks very much like that of a car loan; it states the total amount borrowed, the interest rate, the length of time over which the loan must be paid back, and any other details of the transaction. The Note is the actual debt.
The second part of the transaction is the mortgage document. When a borrower who owns or is acquiring property gives the lender a mortgage, that mortgage document gives the lender a lien on the mortgaged property which serves as collateral for payment of the debt and for compliance with the other obligations which the borrower agrees to in the Note. If the borrower defaults in any of the Note terms, the lender can commence judicial foreclosure. This will be explained in more detail in the next section.
The mortgage is the security instrument that pledges the mortgaged property as collateral for the debt represented by the Note. Until recent years, when mortgage lending became very lax, standard procedure required all owners of a property which was going to be collateral for a mortgage, to be parties to the entire mortgage transaction; they were required to commit to the obligations of the Note and also to sign the security instrument (mortgage or deed of trust).
However, this has changed in recent years, and it became commonplace for loans to be made to only one of the owners of the property. In such a case, the ‘borrower’ would be the only party signing the Note. The other owners though, would still have to sign the mortgage document to allow the lien of the mortgage to attach to their property. This could not happen without their agreement. In many states, non-owner spouses are also required to sign the mortgage in order for the lender to have a valid lien or conveyance. So, it has become commonplace for someone to be "only on the deed and not on the Note". What this means is that person ‘not on the Note’ has some sort of interest in the property, either as an owner, a spouse, or potentially as an heir of a deceased borrower, but is not actually obligated to repay the debt. However, that person would also have to have signed the mortgage, thereby agreeing that if the borrower did not pay as required, the property could be foreclosed upon to raise money to apply to the debt.
When an owner had not signed the Note, legally he or she did not become liable for the debt. It should not appear on his or her credit report, and if done properly, a foreclosing lender could not pursue them personally; as to him or her, it would be limited to recovery of the property. However, this circumstance can cause numerous additional issues and considerations, since in many cases, the law firms filing foreclosure do not properly distinguish non-borrower signatories, which can result in a mess.
We have helped many non-borrower defendants to preserve their credit rating and to avoid being lumped in with a defaulted borrower in a foreclosure judgment.
CAN A CONDO OR HOMEOWNERS ASSOCIATION FORECLOSE?
Condominium and Homeowners’ Association Foreclosures in Florida
I am asked this question very frequently. Generally, condominium and homeowners’ associations have the right to file a lien for unpaid assessments, and then, if it remains unpaid, they have the right to foreclose that lien. A completed association foreclosure will end with you losing your property. Assuming there is one (or more than one) mortgage on the property, and even assuming that that mortgage is for more than the value of the property, the association can still foreclose. Here is where it gets tricky. If the association forecloses and there is a first mortgage on the property, the association foreclosure will not get rid of that mortgage, but it WILL get rid of the current owner. A foreclosure sale is held, and the high bidder at the association's foreclosure sale gets title to the property, with the mortgage still on it. This has become a very serious problem, as associations have become much more aggressive in pursuing foreclosure.
The effect of a completed Association foreclosure is that a buyer at such a foreclosure sale is now
the owner of the property, and can evict the now prior owner and move in, or move a tenant in. While this may sound strange, it is happening in Florida quite a lot.
What is the Point of an Association Foreclosing?
Many people assume that their association cannot foreclose on them or that it makes no sense for their association to go through this process. However, neither of these assumptions are accurate.
Every association has a budget, which is its expected income and expenses for the year and sometimes a contingency reserve is added. It then takes that total annual expense and apportions it among the owners according to whatever formula is mandated by its governing documents (if a condo, the shares are usually prorated based on the size of each unit, if a homeowners association, the shares are usually per lot). So, if an operating budget is $1 million for the year, and if there are 500 owners all obligated to the same share, that is $2000 per year per property, or $166 per month. However, if 100 of those owners do not pay, the association will be short by $200,000. In order to pay its bills, since it must come up with the money somehow, it has to add special assessments to the other owners, making THEIR shares even higher.
· Many associations have made policy decisions that unless they enforce their rights to foreclose, more owners may not pay.
· Many associations have become aggressive about enforcing their rights to foreclose.
· In some cases, if the association gains title to the property, even though temporarily until the bank forecloses, it may be able to rent the property out for a while and so make some income on the property. In fact, in Florida the law was recently changed to specifically authorize associations to do this, so there would be no doubt as to their rights.
· In some cases, third party buyers are actually outbidding the association at its foreclosure sale, and then renting out the property until the bank forecloses.
So, while on the surface it may not seem like it makes sense for an association to foreclose, and while many homeowners believe that "all an association can do is to file a lien but not to take the property", the truth is that this is happening quite a lot now. If you are a homeowner with either a condominium or homeowners association, be very careful. Unless you do not care, make sure to stay on the right side of the association or you are in danger of losing your home to an association foreclosure. This can happen whether you have a mortgage or not.
Furthermore, as the association moves the foreclosure process forward, the amount of money it would take to "cure" the default gets larger and larger, as the associations are normally allowed to add their attorneys’ fees and collection costs on top of the past due assessments and interest. Association foreclosures normally have very limited defensive opportunities. In most cases the association maintenance is relatively small, and, even if you are undergoing financial hardship, if it is your goal to find a way to keep your home, you will greatly complicate matters unless you continue to pay the association.
If you are served with an association foreclosure, please contact us immediately, as these cases move very quickly and are very dangerous.
What is a Deficiency Judgement?
A deficiency judgment is a full-fledged judgment for the total balance of the mortgage debt, including all collection costs, legal fees, advances for taxes, insurance, etc etc., less the claimed value of the property foreclosed on AT THE TIME OF THE FORECLOSURE. This is called the shortfall.
The term "deficiency judgment" refers to a judgment for a debt, the amount of which is the shortfall that is created after foreclosure or short sale, when the collateral taken back by the lender (your property) or sold has a current market value that is less than your current debt to the lender. Since the lender was not made whole by taking the property back or by the sale proceeds it received, the law allows it to come after you for the difference.
IN FLORIDA, WHAT IS MY RISK OF DEFICIENCY JUDGMENT?
It is EXTREMELY HIGH. Florida law makes it quite simple for the creditor to obtain the deficiency judgment and give it ONE YEAR after the foreclosure judgment is entered by the Court to do so. Florida law makes the process of pursuing deficiency judgment quite simple. This means that the odds are very high that the lender will not realize enough through foreclosure to pay itself back in full for the amount owed, and therefore it will still show a substantial balance due from the borrower. We are definitely seeing deficiency judgment actions in Florida and will most certainly see many more in the future.
IS IT POSSIBLE THAT THERE WILL BE NO SHORTFALL?
Possible but not likely. If your property is worth more than you owe the lender, odds are good that deficiency judgment will not be a problem. This means there is "equity" in the property, and if so, there is a good possibility that some other bidder will outbid your lender, which will result in your lender getting all of its money. Furthermore, if you have equity in your property and are in foreclosure, you are much better off selling the property and keeping the equity than losing it to a foreclosure.
However, due to the large numbers of mortgages in Florida now that are upside down, the odds are that this will not happen, and that therefore the lender will wind up owning your property. If the lender is the successful bidder, it then continues to add interest, costs, advances and expenses to the debt until the property is disposed of.unless you have significant equity in your property. Property values in Florida are continuing to fall. Foreclosure properties bring even less than "normal" sales, so the odds of a shortfall are even greater, and the size of the shortfall is likely to be even larger, than if you tried to sell your property yourself.
HOW DOES THE AMOUNT OF THE DEFICIENCY JUDGMENT GET DETERMINED?
The creditor (or some party on its behalf) will put before the court its position on the value of the property and also the numbers included in the foreclosure judgment. Unless the borrower successfully opposes those numbers, that is what the court uses.
I HAVE HEARD THAT LENDERS ARE NOT SEEKING DEFICIENCY JUDGMENTS, SO WHY WORRY?
That is not true. Typically, foreclosure plaintiffs sell their deficiency judgments to debt collectors, whose entire business is based on suing to collect debts. These companies aggressively pursue deficiency judgments.
WHAT CAN I DO TO AVOID DEFICIENCY JUDGMENT?
The answer depends on exactly where things stand regarding your mortgage. If a foreclosure has been concluded, your only options are either to consider bankruptcy or to consider defending against efforts to obtain the deficiency decree. The second option can be difficult to do, since it is very possible that you would not even know about it until it was over (they only have to send notice by regular mail to your last known address). And, if you are eligible now for Chapter 7 bankruptcy but you wait, it may be that when this all lands in your lap, you will no longer have access to that option, which is often the best option.
If no foreclosure has yet been finalized, careful analysis by a knowledgeable foreclosure defense attorney is necessary, to determine your risk, whether you currently have any negotiating leverage, or how it might be possible to plan an escape route.
REALTORS ARE TELLING ME THAT A SHORT SALE WILL AVOID ANY FURTHER LIABILITY
Unless there is a specific written agreement from the lender to waive its deficiency rights, it retains the ability to pursue (or to sell to another party to pursue) the deficiency claim. Usually, what it does is to take you out of your house, give ALL the proceeds to the mortgage company (which is usually more than it would get if it completed foreclosure), pay nice commissions to the realtors, and leave you on the hook for the ENTIRE DIFFERENCE between the mortgage balance with all additional charges for collection fees, advances for taxes, insurance, etc. added on and the short sale proceeds.
ARE DEFICIENCY CLAIMS ACTUALLY BEING MADE?
YES! Do not believe ANYONE who tells you that you are not at great danger from a deficiency claim, unless they provide you with something in writing from your mortgage holder which says that IT WAIVES ALL RIGHTS TO DEFICIENCY. BEWARE! A waiver of deficiency rights is NOT the same thing as releasing the mortgage lien to allow the short sale to close.
We have helped many people avoid being exposed for deficiency judgments.
With locations in Coral Springs, Coconut Creek, and Boca Raton, the law firm of Margery E. Golant, P.A. serves Southeast Florida including the communities of Boca Raton, Boynton Beach, Coconut Creek, Cooper City, Coral Springs, Dania Beach, Davie, Deerfield Beach, Delray Beach, Fort Lauderdale, Fort Pierce, Greenacres, Hallandale, Hollywood, Jupiter, Lake Worth, Lauderdale Lakes, Lauderhill, Margate, North Lauderdale, North Palm Beach, Palm Beach, Palm Beach Gardens, Oakland Park, Pembroke Pines, Plantation, Port St. Lucie, Riviera Beach, Southwest Ranches, Stuart, Sunrise, Tamarac, Vero Beach, Weston and Wilton Manors.
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