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.
Deficiency Judgments
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 mjposner@warddamon.com
