What should I do if I have received legal papers advising of a foreclosure of my home?
In Florida, the foreclosure process moves very quickly, although with the larger number of foreclosures beginning in 2007, it likely will take a little longer than usual. Once you are served with the legal papers which is a Complaint and Summons you have only 20 days to respond in writing to the Court. In your answer, you need to detail all the defenses and counterclaims you have against your lender. If you do not state them in your answer, under Florida law you may lose these defenses and claims forever.
Can I fight back or delay the foreclosure? Absolutely. Although you most likely will have to pay your loan back, with a successful defense you can buy precious time and leverage to:
- Negotiate a work-out with the bank.
- Sell your home at a fair price under favorable market conditions.
- Apply for a court ordered repayment plan (even if the mortgage company is uncooperative)
- File a Chapter 13 or Chapter 7 bankruptcy.
- Get rid of credit card debt in a Chapter 7 or 13 bankruptcy and buy time to catch up on house payments.
- Get rid of credit card debt to improve debt ratios for refinance of mortgage.
Just the filing of an Answer alone without providing any affirmative defenses will usually buy a homeowner 30-60 days additional time. Defenses that can take 6 months to 24 months or more to litigate can include an improper acceleration of the Note, lack of standing by the lender suing you, lost Notes, improper servicing of the loan etc. You may have additional claims such as mortgage fraud, predatory lending, Unfair Trade Practices Act violations, Fair Debt Collection Practices Act violations, latent defects in the construction of the home that you were unaware of at the time of purchase, usury violations in the rate of interest you were charged etc.
What can I do and how much will it cost? You can try to negotiate a work-out with the lender. If that fails or the lender is unresponsive, you can try and fight the foreclosure in litigation, hoping the lender made a mistake and the Court will prevent the foreclosure. Many loans in recent years were not properly documented and strategies exist to derail the foreclosure. This may buy you time and leverage to arrange a resolution to the foreclosure such as a modification, work-out, short sale, deed in lieu of foreclosure, refinancing, selling your home for a fair price under favorable market conditions, getting a job or a second job for additional funds, or filing bankruptcy. Our law office offers low payment plans for bankruptcy and for foreclosure defense including flat fees so you know exactly what your fees will be.
What will a bankruptcy do for me in my foreclosure? It will first and foremost stop the foreclosure. A Chapter 13 Petition will stop all collection efforts against you including a foreclosure. It will stop garnishment, collection notices, collector calls, repossessions and a foreclosure.
A Chapter 13 Plan can be filed to allow you to catch up on any past due payments to your mortgage company over 60 months. It will not allow you to alter the terms or interest rate of your primary loan, only a refinance or modification can do this. Second mortgages can be eliminated or stripped off the property in a Chapter 13. Also by filing a Chapter 13 you can clear or reduce credit card debt and hospital bills. This will also stop the 25%+ interest rates, late fees, over limit fees and allow you to catch up, if not discharge in full, this unsecured debt. Once cleared of the credit card and other unsecured debt, you may be in a better position to refinance or modify your loan. In the meantime, the house is protected by the automatic stay provided by the Bankruptcy Court.
Do I need an attorney? You have the right to represent yourself in any legal proceeding. However having the right attorney to advise you in the complex foreclosure process or bankruptcy proceeding can be the difference between a successful outcome and merely spinning your wheels. Foreclosure defense is fairly complex and novel approaches and new case law are appearing every day. There are mandatory pre-filing requirements that cannot be waived for instance that will cause a bankruptcy to be dismissed. There are additional requirements for a second bankruptcy to impose the automatic stay. There are a limited number of bankruptcies you can file regardless of whether the last one was dismissed for failing to file a piece of paper. The mortgage company will have an attorney. The new Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) has made the bankruptcy laws much more complex and has many more requirements than what was required prior to October 2005. Constant updates are being made that your attorney will be aware of to ensure compliance. For instance, as recently as July 1, 2007, the personal property exemption of $1,000 was increased to $4,000 for all debtors who are not claiming a homestead exemption. If you were unaware of this, you could lose $3,000 of belongings by not properly claiming a lawful entitlement. Amounts owed on vehicles and second mortgages or HELOCS can be reduced or eliminated subject to bankruptcy rules and case law.
What if I have an adjustable rate mortgage that I cannot keep up with? There is a possibility that nothing you can do can save your home. Even after you get rid of credit card debt, if you are in a situation where your mortgage is so large that it is greater than your monthly income or does not leave you money to put food on the table, you may have to surrender your home. In that event, please consult with a bankruptcy attorney regarding your options. You may find that your realtor, lender, and mortgage broker may all suggest a short sale. A short sale is process where the lender agrees to take less than what is owed for the house once you obtain an offer to purchase. However, we find that most homeowners are not advised that they could be sued for the deficiency judgment (the amount still owed on the promissory note) and they will likely receive a 1099c from the mortgage company for the amount of the forgiven debt. You are simply told that if you accept a short sale you will not have a foreclosure on your credit. While maintaining your credit is important, the possibility exists that you could be sued for a deficiency judgment for the unpaid balance owed on the promissory note(s) and the time to negotiate this is during the short sale process. Also a $100,000 of forgiven debt reported on a 1099 to the IRS would result in approximately $30,000 in taxes. The IRS treats the forgiven debt as income to you. You would now owe the IRS $30,000 in taxes that generally cannot be discharged in bankruptcy. You would want to weigh your options in this event. The Mortgage Forgiveness Debt Relief Act of 2007 that was passed on December 20, 2007 eliminates the taxation on a primary home for a three year period provided the loan was used to purchase or improve the property and not used to pay off credit card debt or buy a vehicle. It does not waive any deficiency balance owed to the mortgage company and it does not protect you from taxation on forgiven debt on second homes or investment homes.
What if I have been offered a refinance or equity line to pay off debt? Again, you should obtain competent legal advice to weigh your options. Most bankruptcy attorneys offer free consultations. Often a refinance is an excellent way to reduce interest payments, catch up on credit card debt, make improvements and obtain some extra spending money. However, there are many situations where a refinance may not be your best option such as:
- You have a large amount of credit card debt that can discharged in a bankrutpcy leaving you with an affordable mortgage payment for the future.
- By taking on an additional equity line or refinance you are required to pay off your credit bills (credit card debt) with equity from your home that is protected by homestead laws. If your mortgage(s) become too large for your income, or you lose your job, you may lose your home in foreclosure. Credit card companies cannot force the sale of your home, but the mortgage company can.
- You have a fixed low interest loan presently and the new refinance is an ARM (adjustable rate mortgage) with the potential for a higher rate of interest. Mortgage payments can increase 50% under some ARMS, be careful. Most mortgage companies also charge a higher interest rate for people who already have debt problems.
- You have a high pre-payment (several thousand dollars) penalty upon the refinance. Any equity that you do have may disappear with multiple refinances, broker fees, pre-payment penalties, closing or transaction costs.
If you are considering a refinance, make sure it will be a long term fix to your debt problems or you may be setting yourself up for failure later at a greater expense, such as losing your home altogether. In the current market in 2009, refinances are very hard to obtain and are expected to remain so for at least a few years.