The "Rocket Docket" or Expedited Foreclosure in Florida

Governor Rick Scott recently signed into law a bill that will speed up foreclosure cases in Florida. Consumer rights groups says this is a blow to homeowners. Economist types say it is good for getting all of the delinquent homes out of the courts. This article does not take a position in either way, but merely explains how the new law affects homeowners.


Prior to the passing of the law, which, by the way, goes into effect immediately, a bank would file a foreclosure complaint and serve it on the homeowner. The homeowner would then have 20 days to respond. Usually, the homeowner would ask for an extension of time to respond to the complaint, maybe another 20 days. Foreclosure defense firms would then file a motion to dismiss the complaint for some technical reason. The motion to dismiss would likely get denied, but there would be additional time to answer the complaint. Once an answer was filed, the bank would usually file a motion for summary judgment. Due to the numerous foreclosure cases pending in the system, a motion for summary judgment would not be heard for at least 90 days, sometimes much longer. When the motion for summary judgment would be brought up for hearing, the motion is normally granted and the court would set a sale date. Although the sale dates should be set within 25 days of the hearing, the courts routinely granted 90 day sale dates. Ten days after the sale date is the usual date when the homeowners' rights to the home are extinguished.


(Foreclosure defense attorneys often try to find ways to extend these times. The average foreclosure in Florida takes 853 days from the initial default to the foreclosure sale.)


The new law seeks to expedite the process significantly. However, there remain certain requirements that protect the homeowner. In many cases, the foreclosures were delayed because the banks could not establish a chain of title showing that they actually held the promissory note and mortgage. The new law requires that the foreclosure complaint clearly state facts to show that the bank is the holder of the note and mortgage at the time the complaint is filed. This may result in a delay in bringing the action.


Under the new law, once the complaint if filed, the bank, or even a homeowner's association, may file a request for the Court to enter an order to show cause for the entry of a foreclosure judgment. This hearing can be set as early as 45 days after the complaint has been served on the homeowner. If the homeowner does not present a viable defense, the Court can set a sale date at the hearing. At the new law's fastest application, a homeowner can be out of the home within 70 days of the date they are served with a complaint.


This certainly is a lot faster than the Courts have been proceeding. In reality, it is unlikely that the Courts will be able to move the cases this quickly. But, a homeowner should no longer think that when served with a complaint it will take months, if not years, before the house is foreclosed.

Strategic Default? Is it Really the Best Alternative?

I am sure that you have seen in the news about people giving up their homes as a "stretegic default". You may also be aware that people who lose their principal residence in foreclosure will not be responsible for taxes for the normally taxable event of a "loss forgiveness". When contemplating a "strategic default" homeowners can presently afford the home in which they are living but decide not to pay. They take the money that would be used for a mortgage payment and choose to put the money somewhere else that would be protected by the laws of the state. In Florida, that could include retirement plans, trusts, life insurance policies, or even another home. They may be protecting the assets but they may not be protecting themselves from personal liability. Eventually, the home will be foreclosed (probably more than a year in Florida from time of default to foreclosure sale). I will use the example of a $250,000 mortgage on a home that is now worth $125,000. Once it is foreclosed, the mortgage company will potentially have a "deficiency" of $125,000. If the foreclosure was completed prior to December 31, 2012 (this may again be extended by the new Congress), the deficiency balance, or loss forgiveness will not be taxable. However, this does not mean that the bank (or, the subsequent owner of the note) will not be able to pursue the homeowner for the balance. In a stretegic default, the homeowner would have been able to live "rent free" for at least 12 months. Assuming a mortgage payment of $2,000, they would have been able to save $24,000.00. But, after the foreclosure, they would still have a potential debt of $125,000.00. It is important to be aware that the bank will have five years (in Florida) from the sale date to pursue the $125,000 plus interest and cost. It is the fear of many bankruptcy attorneys that clients will choose to walk away from their home, forget about the potential liability and five years later be faced with a lawsuit. There are better options. Homeowners can choose between a "short sale" or "Deed in lieu of foreclosure". With a short sale, the homeowner puts the home up for sale at the market rate. The property must be advertised as a short sale and state that it is subject to the bank's approval. Once a buyer is found, the contract is presented to the bank for approval. There are a lot of internal unknown reasons for a bank to consider a short sale. The bank will not approve a short sale if the property is not being sold for "market value". Why they would reject a short sale is a mystery. As part of the short sale, the bank may require the financial records of the homeowner. A deed in lieu of foreclosure merely means that the homeonwer is giving the property back to the bank without the bank having to go through the foreclosure process. A Deed in lieu of foreclosure is usually unavailable if there is a second mortgage on the property. If there is a second mortgage, the second mortgage holder will have to approve the transfer as well. (If the first mortgage and second mortgage are held by the same bank, it does not mean it will be approved.) A bank will not likely accept a deed in lieu unless the homeonwer has taken efforts for at least six months to market the property. Many times the bank will forgive the deficiency indebtedness in the situation of a short sale or deed in lieu. But, it may be subject to the bank's review of the homeowner's financial records. If you have any question, please contact me at brian@bkmbankruptcy.com.

BANKS SLOWING FORECLOSURE PROCESS

You may have recently heard that the banks are temporarily halting their foreclosures. What does this mean and why are they doing it?

When banks like Countrywide went under, the mortgages and promissory notes were "mis-placed". The assets of Countrywide were sold to other banks. When they sold the assets, the mortgages were supposed to go with them. In the rush to get the assets transferred, especially the mortgages (after all, your payments had to go to someone) the banks got sloppy with the paperwork. What the banks got was your electronic information, but not the actual papers.

Then homeowners got in financial trouble and could not pay the debt. The banks stopped receiving payments so they had to foreclose. The problem is, to foreclose in Florida (and most other states), you actually must have the note and mortgage. In a rush to foreclose, the banks hurriedly stamped the notes or tried less honest approaches to foreclosing the property. Although attorneys challenged the ownership of the mortgages, it wasn't until the banks' law firms started getting into trouble that the banks decided to take a deep breathe and review the paperwork.

This leaves mortgages in a state of flux. The question is, who owns the note and mortgage? There are many attorneys out there making a living off homeowners during this process. Some might even be saying that you may never have to pay for your home. This falls under the "too good to be true" category. If you want to eventually give up your home, then stay in it, fight the good fight and stay as long as you can and leave at the end of the process.

I am afraid many homeowners will buy into the chance that they will own their house without having to pay for it. Then, one day, after not having paid the mortgage for two years, they will be shocked when their home is sold in a foreclosure sale.

Debt Negotiation

There must be a lot of money to be made in debt negotiation. Just listen to all the advertising. Do you think they are out there for your benefit? They are trying to make money off you. It has gotten so bad that Attorney General's throughout the country are shutting the worst offenders down.

Here is my perception of how they work. First, your creditors will not negotiate with you when you are current with your payments. So, you must start missing payments. The reality is, you have to miss about six payments before you can get to someone with authority to settle the case. While you have missed six payments, late fees and interest accumulate. Thus, your debt becomes higher.

If you are using a debt negotiation company, they will likely charge you a monthly fee. At the same time you will start to put money away. After six months, when creditors are starting to talk to you, or the negotiator, a lump sum settlement amount will be negotiated. While it may seem like 50% of the amount owed, in reality it is probably closer to 75% or 80% of what it was 6 months earlier considering the new late fees and interest that has accumulated. And, you have ruined your credit.

A better approach may be to make minimum payments on certain debts each month while dedicating extra money to the lesser of your credit cards. Eventually, you will pay off that creditor. When that creditor is paid off, you move on to the next creditor until you are debt free.

Of course, this is much easier said than done, and takes a lot of discipline. But, the reward is worth the sacrifice.

What About My Credit Score?

It seems that many Americans are more concerned with their credit score than their net worth. I have many clients that have $50,000 or more in credit card bills that are more worried about how bankruptcy will affect their credit score than they are with getting rid of the debt. Each month they are paying $1,000.00 per month or more to pay off credit cards. They are killing themselves with worry and stress to pay this debt. They aren't working for retirement or a financial future but instead are working to pay debts.

As I have stated before, I think bankruptcy should be a last resort. There should be a plan to get out of debt before resorting to bankruptcy. But, if it is impossible to pay off the debt due to income limitations or illness, bankruptcy is a very good financial option. It is certainly better than being a slave to your debt.

How will bankruptcy affect your credit score? It will affect it between 100 and 200 points. Now, we've got that out of the way, what does it mean? Bankruptcy stays on your credit report for 7-10 years. However, once you obtain your discharge in bankruptcy, you can begin to rebuild your credit.

As you make each car payment and each mortgage payment, you are rebuilding your score. When looking at your credit score, examiners will see higher income and low debt levels (debt to income ratio) because you have just discharged your debt in bankruptcy.

While rebuilding your credit score will take time, rebuilding your life will be easier.

BEWARE OF TRANSFER OF PROPERTY

I always thought this was an obvious point, but after having many clients ask me, "what if I give the property to my (insert family member)", I think this issue should be addressed.

When one files bankruptcy, they have a duty to disclose their entire financial picture, including any transfers they have made over the past two years. The failure to knowingly list a transfer may result in the denial of the debtor's discharge, meaning that there was no reason to file bankruptcy. Or worse, the Debtor could be subject to criminal prosecution for bankruptcy fraud.

Sometimes a potential client may have an asset that is not subject to being exempt (that is, untouchable by the trustee). Sometimes it is a car. After going through the scenario of either losing the car in a chapter 7 or paying for the car in a chapter 13, I often get the question, "what if I transfer the car to my brother?" One is free to make the transfer, but the transfer must be disclosed in the bankruptcy.

If the transfer was done without consideration, that is, the person who the property was transferred to gave nothing in return, the bankruptcy trustee can recover the property. The bankruptcy laws give a lot of authority to the trustee. The trustee in a bankruptcy case has a duty to investigate a debtor's financial affairs. Within that investigation is the examination of any transfers from the debtor to anyone else. The Trustee can apply the law of the state and look back four years in Florida.

Even if the transfer was done with no intent to hide the asset and was given as a repayment of a debt, the Trustee could still seek recovery of the asset. Transfers to family members within one year of the filing of the bankruptcy, even if it is for the repayment of a debt, can be avoided by the Trustee as a "preference".

The rationale for these recoveries is to put all creditors on equal footing. The court does not distinguish American Express from Aunt Millie.

HOME LOAN MODIFICATIONS

Maybe as a result of the market, or because of the bailout, there has been a lot of success with loan modifications. Some banks are more willing to work with you than others. You have to be patient with the results. In what seems like a good gesture on their part, the bank may initially allow you to miss a few payments if you come up with a significant down payment towards your past due amount. This will not be the best offer the bank can make. Nor will it likely be in your best interest to take what they offer.

There are various companies offering to assist with the modification. Some of these companies have good success. Others really do not do much for you. If you are going to try to do a loan modification, make sure you use a reputable company.

When seeking to modify, you will need to provide:

hardship letter
tax returns for 2008 and 2007
a month of paystubs
bank statements
original loan closing statements
list of income and expenses

Modification should be an option that you should examine thoroughly. It could lead to a good result for you.