A recent article in the Miami Herald notes the spike over the past 3 months in foreclosure filings in South Florida and other key states. The article which derives much of its information from reports by Attom Data Solutions shows a more than 35% year over year increase in foreclosures.
The theory for the increases has to do with credit crunches resulting from various economic issues that are causing borrowers to be late with mortgage payments or even underwater (once again).
Our office however is seeing instead the surfacing of old mortgage defaults - defaults that go back as much as a decade - on mortgages that usually have been traded amongst investors. We call these "Phantom Mortgages". These investors may feel that the time is right to foreclose and bring the property to market.
So why the delay by the investors?
There can be several reasons for delaying a foreclosure. Carrying costs is a primary one. Lenders do not want to pay taxes, insurance, maintenance and association fees on a vacant home. Delaying foreclosure may not save on real estate taxes or insurance, but maintenance and association fees not being paid for 6, 8 or 10 years is a huge savings. In addition, the market value is better now than years ago. So the likelihood of a third party purchase at the foreclosure sale becomes more likely, thus avoiding the lender taking the property back and then having to market it, maintain it, etc. until sale.
Are the lenders barred by the lapse of time?
Foreclosures are based on the non-payment of a promissory note. The statute of limitation on the enforcement of a promissory note (in Florida) is 5 years after it matures. The law is generally that maturity is when the note says so (a specific date) or the date the lender accelerates the maturity date because of a default of the promissory note terms. However the law is now that each monthly default (if default of payment) constitutes a new default even if the note was declared in default and accelerated by the lender. So a note in default for 10 years can still be the basis of the foreclosure, but the court will only allow the amount to be collected to go back the 5 years from the present time.
So what we are seeing is the surfacing of foreclosures that were dismissed for various reasons and instead of fixing documentation right away, lenders sat on the unpaid mortgages and now we are seeing the movement of these phantom mortgages.
Copyright 2018 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., ZARETSKY LAW GROUP, 1615 FORUM PLACE, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ@ZARETSKYLAW.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 www.ZARETSKYLAW.com.
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