The Real Estate and Business Blog

Many are experiencing difficult economic times, and some of you have fallen behind on your credit card bills.  When the calls start coming in, you answer them and cooperate with the debt collector feeling as though you’ll be able to catch up with the payments soon enough.  You also don’t want your credit score to suffer.  You’re thinking that if you cooperate with the “nice” debt collector, he won’t rush to report you to the credit bureaus and ruin your credit score.

You may have been able to make the next month’s payment or even catch up, but then you fall behind again and possibly miss payments on other credit cards.  And eventually those collectors start calling too.

Whatever and however you ended up here, you never meant to fall behind.  And you swear that you want to pay them back, but can’t.  Unfortunately, the calls do not stop.  What at first were friendly reminders and request for payments, turn into persistent and menacing calls for immediate payment.

Once the calls become undignified and insulting, the debtors collectors may have crossed the line and violated the FDCPA.  We’ve covered this law extensively in our other tutorials and recommend that you listen to them if you believe they may be misleading you, or if they begin to use profanity or other tactics which are harassing in nature.  If they do these things, you may have a claim.  You can also call us at 305 771-DEBT or visit us at www.defendusnow.com.

Now let’s suppose that the calls are respectful and, while firm, do not insult, threaten you or violate the FDCPA in any way.  But they are consistent. You’re tired of asking for more time, more understanding.  They give you time, but ask for some sort of payment.  You eventually stop answering their calls.

Now the ringing of the phone itself becomes the constant reminder that you’re behind on your payment.  When the phone rings, you’re thinking “I hope that’s not a 1-800 number”.  When you check the caller ID, if it is a debt collector, you may let it ring and may even delete the messages without even listening to them.

Well, it doesn’t have to be this way.  Simply answer the call and get the person’s name, their business name and business address and mail them a letter asking that the phone calls stop and that all communication be in writing.

Now, there are a lot of things you could have done better.  For example, you could have asked that they validate the debt.  This would have ceased all communication until they validate the debt.  Sometimes they may never be able to.  These calls will stop until they do.

Either way, send the letter, whether it be a letter asking that they validate the debt (which I recommend you do first) or a letter asking them to stop calling, but send the letter certified so that you can later prove that the letter was sent and received.

If the calls continue, they have violated the FDCPA and you have a claim against them.  You may never be able to pay them, but if you ever negotiate with them, be sure to know that a lawsuit for an FDCPA violation will certainly give you the leverage you need to get the terms that work for you.

If you’d like to get a FREE consultation with us to review your situation and tell you whether or not you have a claim, call us at 305 771-DEBT or visit us at www.defendusnow.com.  It is totally free.  It’s our way of giving back.  And if you do have a claim, you won’t have to pay us.  We’ll make sure that the debt collector pays our fees and costs – and if we don’t, then you still pay nothing.  But you have to call us now.  Call 305-771-DEBT or visit our website now at www.defendusnow.com.

Q:  I purchased a Florida property at a foreclosure auction where the condominium association (not the lender) had foreclosed on its lien for monthly maintenance.  I am aware that that I purchased the property subject to the first mortgage, but am I responsible for paying the mortgage?  What about the condominium maintenance and property taxes?  Finally, am I able to rent the unit out to a tenant?

A: According to the scenario you describe, the mortgage lien is superior to your ownership interest and therefore you are responsible for paying off that lien if you want to keep the property.  Your responsibility, however, is limited to that ownership interest.  In other words, your failure to satisfy the mortgage by not making payments or paying it off entirely will not affect your credit (obviously – you did not sign the note) and the mortgage lender will not be able to pursue any deficiencies against you – but you will eventually lose your ownership interest in the property.

Property taxes, or ad valorem taxes, are very similar to mortgage liens in that your interest is inferior to any tax lien as well.  Your failure to pay property taxes will not render you liable for the tax bill in the future either except to the extent that you may lose your ownership interest.  Tax Certificates are sold and the purchaser can foreclosure on the property through a tax deed sale (similar to a mortgage foreclosure, but a lot easier and faster).

As the new property owner, you are liable for the condominium maintenance.  By failing to pay your maintenance, the condo association has the right to collect maintenance from you.  Although they rarely pursue personal money judgments, they can foreclosure on the property (isn’t this the way you ended up with the property in the first place?).  Also be aware that recent Florida legislation (effective as of July 1, 2010), condominium associations have the right to collect rent from tenants occupying units that are behind on monthly maintenance payments.  This is done through a simple and inexpensive process provided by this new law.  Arguably, they can even find a tenant and rent out your unit if it is empty.

Your right to collect (and keep) rental income, however, will greatly depend on the rights of the lender per the terms of the loan agreement.  Some mortgage agreements assign rental income to the lenders or allow them to place the property in receivership.  In order for the lender to exercise these rights, though, they must do so through the courts.  And they often do not.  Also bear in mind that, just as described above, the condominium association can always step in to collect the rent if the maintenance is not being paid.

As always, every situation is different.  It is highly recommended that anyone in a similar situation consult with an experienced real estate attorney to learn more about your legal rights and duties.

A free online service is now available that provides the credit counseling course (and certificate of completion) that is required to be taken by individual debtors prior to filing a voluntary petition.  This course, offered by ConsumerBankruptcyCounseling.info as a public service, has received authorization from the Executive Office for the United States Trustee, United States Department of Justice, to service all districts except for the District of Alabama and the District  of North Carolina.  Click here to link to the website.

To view a list of all approved credit counseling providers in Florida’s Southern District, visit the United States Trustee’s website here.

Prior to choosing any provider, verify that it is still on the approved list and that it can provide the service that permits a debtor to timely compy with the pre-filing credit counseling requirements.

Recently, officials at GMAC Mortgage, a division of Ally Financial, Inc., JP Morgan/Chase, and most recently Bank of America announced that they are halting evictions of foreclosed borrowers and are halting REO sales in 23 states, including Florida.

In fact, several [title insurance] agents have reported receiving written cancellation of pending transactions involving these lenders. Accordingly, Old Republic policies may not be issued insuring REO sales after completion of foreclosure by these two lenders.

There is no prohibition on writing title insurance on short sales or following a deed-in-lieu of foreclosure involving these lenders or any prohibition against insuring titles where a mortgage foreclosure by Ally Bank/GMAC, JP Morgan Chase or Bank of America appears in the back chain of title.

It happens more often than not: a homeowner wanting to modify his home mortgage loan despite the many reasons not to.  The fact that  most find themselves owing more to the lender than the home is worth is lost among the few reasons they find to save it.  Due to the decline in market value, the single most crucial element of a mortgage loan modification is a principal reduction – yet it is rarely offered.  Despite this, the homeowner usually jumps at the chance to temporarily reduce his mortgage payment.  And temporary it is.

The initial interest rate provided under the HAMP program, as well as in-house modification programs, gradually rises after the modification is finalized until they reach a predetermined ceiling.  Every case is different, but for the most part, that initial interest rate of, say, 2½% simply won’t stay there for long.  Inevitably, the interest rate will continue to rise and that initial monthly payment will rise right along with it.  Albeit, the overall terms may end up being better than the original, but homeowners can not ignore the fact that they remain underwater (the loan amount far exceeding the current value of the home).  A short-term reduction in the monthly payment, without a substantial reduction in principal, will not provide enough of an economic benefit to offset the negative equity in the home.

A recent article in CNNMoney.com found that lenders have come to the realization that, just like with short sales, modifying a mortgage loan is a less costly option for them than going through the foreclosure process and taking title to the property.  The government’s HAMP guidelines, however, are not flexible – leaving many homeowners out in the cold.  Lenders, though, are now more amenable to approving in-house modifications where guidelines are less rigid and even allow for principal reductions (though don’t bank on a sizable reduction) which are not permitted under HAMP.  In fact, as CNNMoney.com reported, far more in-house modifications have been approved by lenders than those under the HAMP program.

“Banks are doing nearly twice as many modifications under their own foreclosure prevention initiatives than under the Obama administration’s signature Home Affordable Modification Program, known as HAMP.”  Surprise! Banks help more homeowners than Obama, CNNMoney.com, By Tami Luhby, August 30, 2010.

Data released months ago shows that lenders lose 20-30% less money when they approve a short sale as opposed to foreclosing on the property owner.  And 10-20% less money is lost when they modify a loan.  A short sale, though, is not always appealing to a homeowner that wants to stay in his or her home.  Owners are far more likely to choose the short sale option when it concerns second homes and investment properties (which, by the way, do not qualify for modifications under HAMP, no matter what cousin Ed tells you).  Unfortunately, everything learned in Economics 101 goes out the window when it comes to a principal residence.  This leaves a large number of homeowners wanting a loan modification even though they shouldn’t.

Because homeowners are not as rational when evaluating the investment aspect of primary residences, they seem to be less concerned about owing more to the bank than what the home is worth.  While most will acknowledge that they are underwater (indeed, sometimes more than twice the value is owed), they dread the loss of the home even more.

Ignoring the hard facts masks the most sensible option: a short sale.  With far smaller rental payments for homes equal in size – if not larger – and in the same neighborhood, homeowners are nonetheless compelled to save their current homes despite the cost.  The old mindset that everyone should  own their home is difficult to shake.  Since the homeowner does not have to face the music for a few years, they cling on to the hope that their financial situation will improve and quite possibly find that that their home’s value has increased enough to have made the saving of the home worthwhile.

The future is unpredictable, but the numbers do not lie.  Saving a home worth far less than what is owed, is not always the answer.  Unless there is equity in the home or some other compelling reason, the homeowner should seriously consider a short sale and forget about a temporary modification.

There have been recent reports about property owners in foreclosure that are stripping down or vandalizing their homes just before the sheriff’s sale.  Appliances, including air conditioning units and pool pumps, are being sold for pennies on the Dollar.  A television news reporter recently interviewed a woman that was actually selling her toilets.  She felt that she should get every penny out of her home before losing it to the lender.  Whether the housed is stripped for profit or otherwise intentionally vandalized, the wrong-doer might just later learn to regret it.

When the lender forecloses on real property, it obtains a final judgment for the total amount due on the mortgage, including interest, costs and attorney’s fees.  When the property is worth less than the judgment, it is very unlikely that an investor third party will bid on and buy the property at the public auction.  When there are no bidders, the lender then takes title to it.

Lender owned property (also known as “Real Estate Owned” or “REO’s”) will later be listed with a real estate agent and sold at market value which, during these times, will most likely be less than the final foreclosure judgment.   In addition to the real estate agent’s commission, the lender will also incur closing costs which will reduce the amount of money they will receive at closing.  The difference between the final judgment and the amount of money the lender recovers when it sells the property is referred to as the “deficiency.”  And the lender is then free to seek a “deficiency judgment” against the borrower (the party that lost the property in foreclosure). 

Should the lender be required to remodel, repair or purchase appliances in order to sell the property, the deficiency will only grow and therefore the deficiency judgment will be greater.  The same is true when the selling price reflects the property’s poor condition.

Aside from the ethical issues raised when one destroys or strips the home before losing the property at public auction, it is, or can be, financially detrimental to do so.  Currently, it seems, most lenders are so inundated with foreclosures that they have yet to pursue deficiency judgments against those they have foreclosed upon.  It is only a matter of time, however, before the number of foreclosures is reduced to the point where the lenders can then focus on collecting on these deficiency judgments. 

As an attorney, I have yet to see lenders pursue these judgments.  Indeed, no one has come to me for help for protection under these circumstances.  But I believe that it is all a matter of time before it happens.  Obviously, there are other alternatives to allowing the property to be sold at public auction.  In previous posts, I have discussed other options such as short sales and deed-in-lieu as possible alternatives to foreclosure.  Albeit, the lenders are not always agreeable to forgiving the deficiency when accepting a short sale or deed-in-lieu, but when they do, this is the best course of action for the property owner to take when in foreclosure. 

Property owners that ignore or neglect a foreclosure will only face deficiency judgments later on, when they incorrectly assume that the public auction is the end of the road for the lender.  There could be no bigger mistake for the property owner assuming that stripping or vandalizing the home is a way to get the last “jab” in against the lender.  They could, more likely than not, be faced with a judgment that includes amounts for the items stripped or damaged – much more than what they were able to get during the fire sale or the short-lived and misguided satisfaction they received in damaging the home in the first place.