2013 has turned out to be a major turning point in real estate and foreclosures, as the long nightmare of 2007-2012 slowly (and in some ways very slowly) comes to an end. Several key developments have occurred, affecting both homeowners in default and those hoping to sell in the future.
One drag on the real estate market is upgraders who in the past would have outgrown their homes and bought larger homes, but with so many houses underwater, many owners are trapped in their existing homes. At one point the total of underwater homes may have been substantially over 40% (and over 50% if you factor cost of sale), but the recent rise in home prices has substantially lowered the percentage of homes underwater. Nationally, the decline is now below 20% of all homes, but Florida lags far behind, with nearly 38% of homes still underwater.
To address this issue, the government extended the Home Affordable Refinance Program (HARP), which was set to expire this year to 2015. The program allows many underwater owners to refinance to near record low interest rates despite their lack of equity. Interest rates have climbed substantially as the broader economy recovers, but even so, a four percent, thirty year loan is still a bargain.
The biggest change to the foreclosure and housing market was the approval by Governor Rick Scott of House Bill 87 – Mortgage Foreclosures. The bill provides major procedural and legal changes to the foreclosure market. The bill was supported by the banks and by most real estate attorneys, but it was opposed by consumer groups and foreclosure defense attorneys. The bill was hotly contested, and had been proposed and rejected in various forms for three years, as foreclosure cases mounted in Florida courts.
The centerpiece of the bill is the ability of banks to expedite uncontested foreclosures. Traditionally, a bank would have to serve a complaint, wait twenty days for service, move for and wait to obtain a default, then schedule a summary judgment hearing, which hearing again required an additional twenty days’ notice, and could take ninety days to obtain a court date in front of the foreclosure judge and their bulging case load. This meant a six to nine month wait to get a sale scheduled, even with no defense tendered by the homeowner. Once any defense was filed (meritorious or not) the case would get further delayed.
To reduce this time period, banks will be able to file, with their complaint, a request to the court for an order to show cause why entry of final judgment should not be entered. The order must be issued if the complaint is proper and thereafter, the homeowner being foreclosed will have no more than 45 days to file defenses to foreclosure. The hearing on the show cause order is heard no later than 45 days after the complaint is filed, and if the homeowner does not defend the action, or if the homeowner fails to raise “a genuine issue of material fact” final judgment will be entered and the property set for sale. In addition any party to the lawsuit can institute the show cause procedure, which will allow associations to expedite foreclosures.
A second change is the finality of mortgage foreclosure judgments, regardless if it is later determined that the judgment should be reversed and the sale set aside. In that instance the homeowner whose home has been sold at foreclosure, and the property acquired “for value, by a person not affiliated with the foreclosing lender or the foreclosed owner” no longer can recover the home, but can only recover damages for the loss.
To avoid the contentious and frequently appealed issue relating to ownership of notes and to reestablish lost notes, new procedures will be required to establish ownership at the time the complaint is filed. This will include either a certification of ownership of the original note or an affidavit regarding the lost note including documentary evidence to support the chain of custody prior to the note being lost.
One major change in the homeowner’s favor was also adopted. Previously, banks had five years to pursue a deficiency judgment against homeowners on the difference between the amount owed and the value of the property on the day of the foreclosure sale. This time period has now been shortened to one year after the foreclosure sale’s certificate of title is issued, which should reduce the number of deficiencies in the long run (though it may cause a short term spike for older judgments due to a pending July 1, 2014 deadline).
The new law takes effect July 1, 2013, and the changes should be in full affect by the end of the year as lenders gear up to take full advantage of the new act. For abandoned homes and investor owned properties, the process should now move faster to sale, but for homeowners with legitimate defenses to foreclosure, the change in the law should not prevent the full adjudication of those claims.