While in the foreclosure trial court for hearings last week, there was a string of lawyers for banks asking the judge to cancel already scheduled foreclosure sales because of pending short sales. Each borrower attorney agreed. The learned judge could either grant each cancellation and allow the short sale to go through - or deny the request of both the bank and the borrower attorney, and make the foreclosure sale proceed.
The judge explained that the Palm Beach Circuit Court had been visited by the Florida Supreme Court (I don't know if that means a judge or some administrative official) and told that if the old backlog of foreclosure cases were not cleared up, the Supreme Court would see that funding for the trial court operations would decrease. Therefore the learned judge denied each of the cancellation requests without hearing any of them on the merits. The problem is that the foreclosure judge, unlike a judge in a regular civil action, sits as a judge in "equity" and note merely "law". The judge is not only charged with following the law according to legislative statutes and case law interpreting those laws, but by using those tools to come to an equitable result as between the parties.
The only alternative is for the bank to dismiss the foreclosure suit, which banks are reluctant to do as explained below.
The impact of this is very complicated for both borrower and for lender and the court. Here is why:
For the Borrower:
The borrower is adversely affected in two ways: 1) The borrower has a foreclosure judgment entered against him or her and 2) the borrower is subject to later money judgment and collection actions because of the likely deficiency of the foreclosure judgment relative to the foreclosure sale price (or value) for the property.
If the short sale was allowed to proceed by the judge, the borrower would have otherwise had the foreclosure case dismissed after the short sale occurred and there would be no foreclosure judgment or deficiency (assuming a waiver of same was negotiated as part of the short sale) money judgment against the borrower.
The borrowers' only solution - file bankruptcy to delay the foreclosure sale. But this is a far reaching and potentially dangerous solution for the borrower and other creditor relations.
For the Lender:
Short sales if approved by the lender, are preferred by lenders because they provide a better economic result for the lender than a foreclosure and likely expensive REO solution.
The lender could just dismiss its foreclosure action - an event that would result in a cancelled foreclosure sale - but it could also have negative economic effect on the lender and its ability and method of bringing a new foreclosure suit if the short sale fails for some reason. Those effects are that at the very least, if the default upon which the current foreclosure is based occurred more than 5 years ago, then only the unpaid interest and advancements less than 5 years old can be included in the new suit. And that is based on current case law application of Florida Statutes. If the Florida Supreme Court determines on a case before it now that Florida Statutes are being misapplied by recent court decisions (as is popular foreclosure defense counsel thought), then any of these cases that gets dismissed voluntarily by the lender (or by the court) may not be able to be filed again because the default and acceleration occurred more than 5 years ago.
The big issue of course is that the short sale may not eventually occur because of a failure of funding for the buyer or the buyer just walking away or in rare cases, the seller becoming uncooperative and figuring out a way to stay in the house for free a bit longer. In recent history it was epidemic that buyers would walk away from short sale contracts because of multiple offers made on several properties. This is not the case anymore as inventory has become thiner and more institutional investors have entered the market. It used to be that it took an average of 3.3 contract to get one to close, and now we are seeing more like 1.5 contracts to get one to close - almost the same a traditional sales. So lenders, based on not too recent history, are reluctant to dismiss the case for all these reasons stated above.
For the Court:
I think the court is being short sighted. The court is a forum of the people - that means the litigants before it. Agreed procedures, provided they are within the rules of court, should be respected and paramount in decisions by the court. How does the necessity of filing a new case benefit the court docket other than to increase the amount of filing fees (which if you did not know for foreclosure cases are about 5 times the amount of filing fees for a similar type case if it were not a foreclosure!). The result is more money for the court - but the case is back in the system. "Old" does not mean "wrong". It means the court system broke down and the court itself along with the litigatant counsel needs to address getting back on track. The short sale is actually part of the solution - not part of the problem.
So it is alt least this writer's opinion that the words of the learned judge, in application of its equitable power to grant the agreement of the litigants or deny compliance with that agreement because of potential budgetary mandates, are unjust not just to the borrower and the lender, but to the court itself.
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© 2014 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 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 New Website www.Florida-Counsel.com.
See our easy to find articles at TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES
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