Freddie Mac will require a $15k promissory note over 120 months at 0% interest = $125/month or $7500 cash contribution at closing instead of promissory note.  The loss to Freddie Mac is very large, so they will require one of these two things to consider approving this transaction.  Please let me know what the seller agree to so we can try and wrap this up.

Thanks,

Clueless Ken
Fifth Third Bank 
Homeowners Assistance Specialist
*****************************************************
Hello Ken,

This borrower applied under the HAFA.  Please advise why this borrower was rejected for the HAFA?

Thanks,

Paul
*****************************************************
Paul, 

It was not reviewed by HAFA because there is a current offer.  If there is no offer, it can be reviewed.  Please be advised, I spoke with the borrower about this today, the prom note or cash at closing option, he said he wanted to discuss with his wife and you.  please let me know by tomorrow what is decided.

Clueless Ken
Fifth Third Bank 
Homeowners Assistance Specialist
*****************************************************

Hello Ken,
 
Can you please verify that?  According to the MMA Handbook page 127, the Alternative RASS applies “[i]f the borrower has an executed sales contract and requests the servicer to approve a short sale under HAFA before an SSA has been executed”.  Page 120 of the MMA Handbook goes on to state:
 
“If a borrower requests a short sale or DIL (whether such request is in response to a servicer’s solicitation under the first paragraph of Section 4 or initiated by the borrower), within 45 days of such request the servicer must consider the borrower for HAFA and send the SSA, DIL Agreement, a written notification that the borrower will not be offered a SSA or DIL or a written response to the Alternative RASS, in accordance with Section 4.2 and Section 7.4.”
 
Ken, this 74 year old borrower is the ideal candidate for the HAFA Alternative RASS program.  If there are additional forms 5/3rd or Freddie Mac would like to have completed for this then please let me know or send them to me.  Every page of the fax stated that the borrower was requesting HAFA!
 
Thanks for you help.
 
Paul
*****************************************************

(clueless Ken cc’s Nancy presumably his Supervisor)

Paul,

I can’t answer a HAFA question because I’ve never worked in the HAFA department, so I don’t know their guidelines.  On another note, they have income and they have assets, they can afford the prom note or contribution….the estimated loss is $128k…why should Freddie Mac assume all that loss and not put any responsibility back on the borrower?

Nancy,

Please review Paul’s email and advise.  I will hold this file open until I get an answer on this tomorrow.  Also, seller has bank statements showing $22k in CDs and checking account combined.  They also have a current offer on the property.  Please advise.

Thanks,

Clueless Ken
Fifth Third Bank 
Homeowners Assistance Specialist
*****************************************************
(I reply to both emails)

Hello Ken & Nancy,
 
Per the hardship letter, the money in the bank is the remains of insurance proceeds from their daughter’s death (I can get a death cert if needed).  The deceased daughter also had a daughter (borrower’s granddaughter) and as the executor of the estate your borrower is obligated to care for the granddaughter with those funds.
 
She makes approximately $500 per month from her job.  He doesn’t work.  They are in their 70′s and receive SSI.
 
Thanks and please help!
 
Paul

Florida Deficiency Judgment

“We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, executive vice president for credit portfolio management. “Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting. On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”

Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.

It’s a beautiful thing – another wonderful day in the world of short sales.

Chase Short Sale with No Deficiency

King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.

“The big dogs get a bailout, and the little man gets no mercy,” said King, 39, referring to the U.S. government’s rescue of banks and other financial institutions.

While there are no statistics on the number of deficiency judgments approved by courts, the Federal Deposit Insurance Corp. tracks the amount banks collect after defaulted loans were written off.

These mortgage recoveries rose 48 percent to a record $1.01 billion in the first nine months of last year compared with the year-earlier period, according to the Washington-based regulator. Recoveries on defaulted home-equity loans almost doubled to $392 million, the FDIC data shows.

The figures don’t include money retrieved by trusts overseeing mortgage-backed securities, such as the one that holds the loan on King’s former home, or efforts by distressed- asset funds and companies that buy bad loans to profit from collection rights. Judgments such as the one levied against King usually tack on court fees, fines and interest.

‘Next Big Crisis’

Deficiency judgments were rare in the 15 years since the last real estate slump, said Ben Hillard, a former investment banker who now is a real estate and corporate attorney at Hillard & Rogers in Largo, Florida.

“The banks have been too underwater with foreclosures to spend much time on deficiency judgments, but that’s beginning to change,” Hillard said in an interview. “This is going to be the next big crisis.”

Almost 4.5 percent of mortgaged U.S. homes were in foreclosure during the third quarter, the highest rate in the 37 years of tracking the data, the Mortgage Bankers Association said Nov. 19. A record one in every 10 mortgages was at least one payment overdue in the same period, the Washington-based trade group reported.

The Obama administration is seeking to modify as many as 4 million loans by 2012 to prevent foreclosures through the Home Affordable Modification Program, which cuts monthly payments to about a third of borrowers’ income. By the end of December, the program was responsible for more than 850,000 modifications, the Treasury Department said in a Jan. 15 report.

20-Year Window

The federal government spent $230 billion in the year ended in September to support homeowners, according to the Congressional Budget Office in Washington. Those efforts didn’t help people who had already walked away from their houses.

In states such as Florida, courts give mortgage holders as long as five years to seek a deficiency judgment and, if granted, up to 20 years to collect. Usually, they have the option of renewing the judgment if it’s not paid off within 20 years.

About a third of U.S. states, including California and Arizona, prohibit collection efforts on primary residences after foreclosure. In some cases, homeowners waive that protection if they refinance. Most states allow collection on unpaid home equity loans.

Depression-Era Protections

The laws in states that protect some borrowers stem from the Great Depression in the 1930s, when a lack of bidders at foreclosure auctions caused deficiencies that, with added fees and interest, sometimes were bigger than the original loan amount, according to a 1934 Virginia Law Review article by Sol Phillips Perlman. Today, many courts measure the shortfall using a property’s market value at the time of foreclosure rather than auction results.

The likeliest candidates for deficiency judgments are so- called rational defaults, said Larry Tolchinsky, a real estate attorney in Hallandale Beach, Florida. In those cases, people who are current on their mortgages decide to walk away from a property because its value has sunk so far below their loan balance they have no hope of recouping the loss.

About 21 percent of American homeowners owe more on their mortgages than their properties are worth, according to Zillow.com, a Seattle-based real estate data firm.

“Walking away from a property comes with a cost, especially for people who otherwise have good credit,” Tolchinsky said in an interview. “The bank is going to pull your credit report, and if you’re current on your other bills they are going to come after you and potentially ruin you.”

Fine Print

It’s not just foreclosures that can trigger debt collections. Short sales also may lead to deficiency judgments years after former homeowners have moved on, according to Hillard, the attorney in Largo. In a short sale, lenders agree to let borrowers sell a home for less than the mortgage balance.

“Banks are being very careful to preserve their rights, either outright in the short sale agreement or by using vague language that leaves that door open,” Hillard said. About 90 percent of people who do a short sale think they are “off the hook.”

That was the case when two of his clients, Brigitte and John Howard, sold their home in New Port Richey, Florida, almost two years ago without using a lawyer to check the bank’s short- sale agreement.

$20,000 Shock

“We got a call out of the blue saying we owed $20,000,” said Brigitte Howard, 45. “It was a shock. There was no mention in the short-sale contract that the bank might come after us for the difference.”

The money King owes to the Soundview Home Loan asset-backed security that holds the mortgage on his former Coral Gables condominium consists of $38,000 for unpaid principal and almost $6,000 in legal fees and interest accrued prior to the ruling. According to the judgment, the security can charge 8 percent interest until he pays off the debt.

King, who said his default was caused by a reduction in his income, now rents near Fort Lauderdale, Florida, where he teaches ballroom dancing.

“I thought the foreclosure was the worst of a bad situation, but it’s not,” said King. “The people who got sucked into the real estate bubble are still paying for it, even after they’ve taken our homes.”

“We are determined to make sure that consumers receive the protections they deserve whether collections are done through the mail, on the phone or, increasingly, through our courts. When they do not, we will act and act quickly,” DLLR Secretary Alexander M. Sanchez said.

The State Collection Agency Licensing Board, a board within DLLR’s Office of the Commissioner of Financial Regulation, issued a summary order today that suspends all of the firm’s consumer debt collections activities, including collections actions in Maryland courts, and prohibits the filing of further collections-related cases.

“This is yet another in a string of problems we are uncovering as the collections industry has made a headlong rush for our state’s courtrooms,” Commissioner Raskin said.

Last month, the Commissioner of Financial Regulation reached an agreement with Encore Capital, Midland Credit Management and related parties to settle alleged violations of federal and state debt collection laws. That settlement included a civil penalty of $998,000 and an agreement to alter certain business practices to ensure that both their litigation-related collection activities and their non-litigation (or “traditional”) debt collection activities comply with all applicable state and federal laws. Mann-Bracken represented Encore-Midland, as well as various other businesses, in thousands of collections-related actions initiated in Maryland courts over recent years.

The home could not be sold as a short sale and was foreclosed on. Before it foreclosed the bank which held both mortgages sold off the second mortgage to a debt collection agency.

I was unable to pay them and now they have served papers on me and are suing me for the sum of the second mortgage.

I have heard in other states that they cannot do this but am unsure about in Florida.

Any help would be greatly appreciated. Thanks!

Bonnie

——–

Hi Bonnie,

When a first mortgage forecloses and the property is worth less than the first mortgage balance, the second has its lien extinguished. 

With the seconds’ interest in the property now foreclosed by the first mortgage, the second is given the status the same as any defaulted consumer debt with a statute of limitations of five years on a written contract (F.S. 95.11(2)(b)). 

A lawsuit may be brought to collect the balance owed plus interest within five years of the default.  There are defenses and possibly counterclaims to such a lawsuit, but to answer your question directly, yes, it is possible (and likely) that a second mortgage would bring a lawsuit to collect the balance after foreclosure in Florida.  Whether or not it is a primary, second home, or investment property has no bearing in Florida.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

Can I give the house back and not lender come after me for judgements issue. House is Florida and no longer live there.

Kim

———

Hi Kim,

That would be a deed in lieu of foreclosure and if that is the foreclosure avoidance strategy selected then that should be negotiated with the lender.  Simply deeding the property to the lender does not guarantee that the lender will provide a full release to the borrower or even that they will accept the deed.

Deficiency judgments are pursued by lenders in Florida – it’s case by case.  For example, here is an example of a deficiency judgment in Pinellas County Florida.  The lender can either make a motion for deficiency within one-year of the foreclosure sale without having the borrower served again – or bring a separate action for the deficiency after one year.

The deed-in-lieu is treated by lenders as a foreclosure for mortgage underwriting purposes.  I’ll add that another option that is superior to the deed-in-lieu is a short sale.  A successful short sale with full release of liability is preferred to a deed-in-lieu because it can settle the debt with a zero balance and is generally not viewed as a foreclosure by originating lenders.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

HUD ML 89-14

To clear the air, I paid my 1/3rd ($127,500) to the lender and was given a full release from the note in the amount of $382,500 but no certificate of satisfaction or partial release from the mortgage. 

My remaining co-owner entered into a modification agreement with the lender with a new unpaid balance of $255,000 on the note and security instrument which reflects my payment. 

In view of lender’s refusal to cooperate, is it possible to infer a partial release by virtue of the lenders acceptance of my payment and their having released me from the entire note. My question is in anticipation of foreclosure and due to my payment I feel I should share in the foreclosure proceeds. 

Rodney

———

Hello Rodney,

I would have to guess that in the event of foreclosure, there wouldn’t be any ‘foreclosure proceeds’ and instead there might be a deficiency balance owed.  Otherwise, if the property has equity then it should be sold prior to foreclosure.

Any names that appear on the deed would also have to sign the mortgage.  The mortgage pledges the property as collateral but the promissory note is the promise to pay it back. 

In Florida, foreclosure is a judicial process and each person claiming an interest in the property (whether they signed the note or not) would have to be sued (either by in-hand service or by publication) by the lender and each person then could seek their dismissal. 

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.