Statute of Limitations
One big issue in the mortgage foreclosure world is the issue of the statute of limitations. Under Florida law mortgages that have expired for more than five years after the maturity date are deemed unenforceable. The legal question was whether mortgages that were in default for more than five years before a new foreclosure action was filed were actually enforceable.
For example, a mortgage that went into default in 2007 and which had a mortgage foreclosure case filed in 2009 that was dismissed in 2011 with a new foreclosure case filed in 2014 six years after the acceleration notice was sent could have been found to be wiped out by the statute of limitations. Two appellate courts have reviewed cases with similar facts and have ruled that only payments that are more than five years delinquent are actually wiped out but the mortgage is still valid for the remaining sums due. These decisions balance the equity of a late filed foreclosure with the inequitable position of basically giving people free homes by not allowing the lenders to enforce otherwise valid mortgages.
It is very likely that this case will eventually be decided by the Florida Supreme Court. Given that two courts have held that the old mortgages are enforceable, it is very possible Supreme Court will agree, ending this legal debate.
Last year the Florida legislature amended the statute of limitations for deficiency judgments from five years to one year. This was due to the uncertainty caused by the five-year statute of limitations. As a result of the new law, lenders must bring an action to seek a deficiency judgment within one year after obtaining a foreclosure judgment. Prior to the new law, there were very few deficiency actions pending in residential foreclosures. However, recently there has been a substantial uptick in the number of deficiency actions filed especially by one law firm located in Texas.
The law firm of Dyck-O'Neal, Inc. has filed over 200 deficiency actions in the last several months. Many of these actions have caught homeowners by complete surprise believing that their foreclosure nightmare was over. The deficiency arises when the home that is foreclosed is worth less than the amount owed to the lender. After foreclosure, a lender has the option of either forgiving the deficiency in which case the homeowner may have tax consequences resulting from such forgiveness or the lender may proceed to obtain a money judgment for the difference.
In many cases, companies have purchased the right to pursue a deficiency judgment from the original lender at pennies on the dollar. They then pursue the former owners, many who have moved on and may even be in a position to pay money towards a deficiency judgment. In addition, once judgment is obtained it is like any other judgment in that wages and bank accounts can be garnished and property that is not protected can be foreclosed.
Cash for Keys
With the growing emphasis of preventing foreclosures many institutions and servicers are willing to work a deal with homeowners who have been in foreclosure for many years to basically trade the mortgaged home for what is commonly known as cash for keys. Basically, if the homeowner only has one mortgage, and no other liens or judgments, a homeowner can execute a deed in lieu of foreclosure to the lender which would end the foreclosure action. This would transfer title to the property to the bank. As an incentive, the bank pays the homeowner and agreed sum which the homeowner may use to pay relocation expenses. In addition, in many cases, the bank agrees to waive any deficiency.
The move out incentive varies from case to case and can be anywhere from $3000-$20,000. In addition, the homeowner avoids having a foreclosure judgment against them which may enable them to obtain a new home mortgage sooner than they could if a foreclosure judgment is entered. Finally, many lenders will even allow a homeowner to remain in possession for a period of time after the deed in lieu is executed in exchange for the homeowner’s agreement to maintain the property.
Shutting down phony trusts and class action companies
At the height of the foreclosure crisis, many unscrupulous companies took advantage of homeowners who are facing foreclosure claiming that they had the secret to lower or eliminate mortgage debt. The first scheme involved transferring the property to a trust with the trust then suing the bank seeking to quiet title. Few lawsuits were actually filed and most were dismissed in favor of the bank. Another scheme involved claims of filing a class action lawsuit on behalf of multiple homeowners seeking to punish lenders for their aggressive lending tactics with the goal of lowering or eliminating the mortgage encumbering the consumer’s property. Again, few cases were filed with most of the efforts of the companies involved centering around hard sell tactics to obtain homeowners payment rather than pursuing legal actions.
The Florida Attorney General has aggressively pursued these cases shutting down the most egregious trusts and recently the Florida Bar has commenced proceedings against the Hoffman Law Group, a law firm in North Palm Beach that has taken substantial sums from consumers as part of their attempts to file class-action lawsuits. It appears very little success has come from the law firm’s actions, and many homeowners are out thousands of dollars.
With the recovering economy, and the increase in the value of many homes, the number of foreclosures has declined but there still is a substantial volume in process and may take many years for the levels to return to pre-crisis numbers.
Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County. They specialize in real estate law and can assist lenders and banks in all legal matters. They can be reached at 561.594.1452, or at email@example.com