WHAT IF I DECIDE TO DO NOTHING AND JUST LET THE BANK FORECLOSE?

By
Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY
https://activerain.com/droplet/4cFM

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?"

head in sand

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.

FALSE SECURITY

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.  

See our easy to understand articles at:

TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES

 

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Rainer
111,614
John Saari
Worcester, MA
"The Mortgage Buddy"

Great informative post Richard. The foreclosure system is such a mess right now NOD laws, robo signing, title issues. I'm beginning to believe there are as many loop holes as foreclosures.

Feb 14, 2011 03:45 PM #2
Rainmaker
550,479
Jon Quist
REALTY EXECUTIVES TUCSON ELITE - Tucson, AZ
Tucson's BUYERS ONLY Realtor since 1996

The banks would be lined up to get at these people if they were going to do so. Banks are as greedy as they come. Never lose sight of that.

Feb 14, 2011 03:52 PM #3
Rainmaker
525,764
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Richard,

Thanks for your incredibly important article. Too many borrowers base their critical decision on misinformation and bad advice from unqualified advisors.

I get asked the "let it foreclose" question several times a week. Some I convert to short sale listings, some cannot be helped because of their unshakable and misguided predisposed decision to let it go.

Feb 14, 2011 05:16 PM #4
Rainer
145,746
Sarasota & Manatee Counties FL
SaraMana Properties - QuickFreeMLS.com - Bradenton, FL
QuickFreeMLS.com - Listings In Paradise

Good points Richard.  Thank you for sharing your thoughts on this!

Feb 14, 2011 06:37 PM #5
Ambassador
2,369,453
Fred Griffin Tallahassee Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

America has changed. 

In the past, it was Honorable to meet your "Obligations".

But today, the Banks are the most Corrupt Institutions on Earth.    They have Congress and Obama in their Pocket.

But my opinion aside, I will advise every Seller that asks, "should I walk?" to consult an Attorney

 

Feb 14, 2011 06:53 PM #6
Rainmaker
229,831
Nathan Tutas
Tutas Towne Realty, Inc. - Davenport, FL
Your Central Florida Real Estate Expert

Well, when you put it that way...

It is an unfortunate reality, but people have to try to do the right thing here.

Feb 14, 2011 07:48 PM #7
Rainmaker
4,797,927
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Richard, thanks for this post.  It is great information and I wish I could re-blog it.  Can you also do one about the differences between a deficiency judgment and a promissory note in a short sale?

Feb 14, 2011 11:33 PM #8
Rainmaker
1,142,336
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Richard. The one I have been hearing from agents lately is "If the property gets foreclosed on the 2nd gets nothing" Now it's my understanding that this is an incorrect statement. The foreclosure wipes out the lien (mortgage) but the promissory note and the obligation to pay it still remain. What sayeth you?

Also.....

  1. Is your accountant friend buying noted after short sales have been completed or just notes from foreclosue?
  2. Have you heard of any lenders going after the deficiency after a short sale has been completed?
Feb 14, 2011 11:40 PM #9
Rainmaker
1,526,818
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Fifteen Years Experience in Brevard County

Interesting information. Now how does a bankruptcy with surrender of a property work?

Feb 14, 2011 11:56 PM #10
Rainmaker
560,290
Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

Good information.  It is easy to just decide to do nothing.  I guess you really have to think things through. 

If the going rate for these notes is 3-10 cents on the dollar, I guess one should try to negotiate a settlement of 20 cents on the dollar.  Would that be reasonable?

Feb 15, 2011 01:19 AM #11
Rainmaker
1,035,071
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

It is interesting to see all this playing out.  I haven't heard of any debtors going after deficiencies except on the really high end properties.  But at some point that may change.  Probably will depend on how soon the economy starts recovering.  Some of the people that got foreclosed back in 2007 will have the statute of limitations running out in 2012 to get sued for deficiency.  That's next year and the economy will most likely still be questionable at best then.

Feb 15, 2011 10:18 AM #12
Rainmaker
527,517
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Richard - Thank you.  I am linking to you on my Facebook business page.  I am also waiting for your answer to Bryant's question above.

Feb 15, 2011 10:19 PM #13
Rainmaker
670,978
Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR
BROKER of Green Realty Properties® - 954-667-7253 - Davie, FL
Top Listing Broker

Great article Richard. I love this line: "judgment proof is not aggravation proof".

Feb 16, 2011 07:13 AM #14
Rainmaker
281,643
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Gabe - already done - one of my most read blogs ever -

Foreclosure Deficiency Judgment Compared to Deed In Lieu and Short Sale Scenarios

Feb 19, 2011 01:46 AM #15
Rainmaker
281,643
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Gabe - is the re-blog turned off?  It shows available on my screen.........?

Feb 19, 2011 01:47 AM #16
Rainer
176,405
David Miller
Seacoast Realty, Inc - Melbourne, FL

Thanks for the accurate information. I have heard agents tell people not to worry about the deficiency because the banks are to backed up to come after them. But four or five years down the road from today, there will be a lot of angry former homeowners.

Feb 22, 2011 04:01 AM #17
Rainer
176,405
David Miller
Seacoast Realty, Inc - Melbourne, FL

Thanks for the accurate information. I have heard agents tell people not to worry about the deficiency because the banks are to backed up to come after them. But four or five years down the road from today, there will be a lot of angry former homeowners.

Feb 22, 2011 04:01 AM #18
Ambassador
1,723,633
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Richard,

i missed this article, and  only read it now, while surfing your articles to send to a potential customer.

Thanks for the clarification

Jun 13, 2011 05:09 AM #19
Anonymous
Michael C.

As a homeowner receiving a foreclosure summons it seems that in my answer

quoting the Florida Statutes, etc. will not fly? I had 8 affirmative defenses as

the Defendant.  Apparently, it is very difficult filing Pro Se to get anything, or relief.

I studied for 15 hours and read the legal defenses and after documenting  all the info

filed the answer. Yet, statistically I seem screwed as 5% deny and 95% are in default.

This ha sgot to be the  " greatest " travesty laid on the American Public. Have you heard of

an individual filing Pro Se ever forestalling the foreclosure? 

Michael  

 

Nov 26, 2012 12:21 PM #20
Rainmaker
281,643
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Michael -

He who represents himself, has a fool for a client.

15 hours of questionably source research is not going to win the day for you in a foreclosure case.

Nov 27, 2012 04:43 AM #21
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