In the series of questions I get when interviewing a potential client who is upside down on his or her mortgage, one question always asked (especially after I quote my fee) is "What if I decide to do nothing?"
It is a legitimate question and with all the press (and misinformation) that abounds, it is hard for those in need of the facts to separate the reality from the imaginary. For example, The New York Times reported on December 2, 2010 that Florida was a "non-recourse" state (meaning that the lender could not pursue a borrower on the promissory note. That information was corrected but not until December 19th - and of the over 1 million print edition readers that saw the wrong information - how many saw the "correction"? To many readers with Florida properties, walking away and doing nothing for their underwater Florida property became a reality - albeit a false reality the fallout from which many a homeowner has yet to realize.
FALSE INFORMATION -
The reality is that in all recourse states and in many non-recourse states to the extent the mortgage and note do not qualify as a non-recourse obligation, doing nothing has essentially the same outcome.
As pointed out in several of my articles and interviews (see CNN, Banks Begin to Go After Deficiencies, Foreclosure Consequences) unless the borrower has in writing from the lender that they are releasing the borrower from the further liability of the deficiency, there remains a valuable right to collect that deficiency from the borrower. That "valuable right" is just like a negotiable instrument - it can be sold for consideration (ie: $$$) and the lender does not even have to get a judgment first to be able to sell that right.
IT JUST DOESN'T MAKE SENSE - SO WHY BELIEVE IT?
So many people tell me "the banks are not going after deficiencies - because no one has money to pay them". Get real!!! First, my office since the first of this year (just 7 weeks) saw more people saying the bank is trying to collect the balance of the loan than ALL of last year! Why? Let's look at the economics of this deal. An accountant friend of mine created a sizable side business of buying defaulted credit card debt and uncollectable obligations like these deficiency rights. He would typically pay 3 to 10 cents on the dollar. Do you think he just wallpapered his office with these obligations he bought? No way! He had a machine of lawyers and collection companies that pursued these debtors and if necessary, sued them to collect. If he got only 15% of them to pay even a portion of the debt, he was way ahead and made a nice profit. He also had the luxury of waiting - since he had the statute of limitations to first even sue the debtor and then when he got a judgment, he could ride it out for years (20 in Florida). He even would sell the judgments he got so he recouped his attorney fees and filing costs and made a profit - and then the new owner of the judgment would do the nasty things to collect the judgment, like garnishment, attachment of bank accounts, and dragging the debtor to a deposition or court to expose and explain his current finances.
And a word to those that say they are judgment proof. That may be true, but that won't prevent a lender being able to file an attachment or garnishment. What then happens is the bank with the account that may indeed be exempt, must freeze the account until a judge decides that the money in the account is exempt from the attachment, or the pay is exempt from the garnishment. In the meantime, the defaulted borrower has checks bouncing all over town! So judgment proof is not aggravation proof.
Now your decide - Is it a good idea to do nothing?
Copyright 2011 Richard P. Zaretsky, Esq.
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 email: RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com Website www.Florida-Counsel.com.
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