Frequently Asked Questions
WARNING
ALL ANSWERS BELOW ARE NOT TO BE CONSTRUED AS LEGAL ADVICE, BUT INSTEAD ARE MEANT TO BE GENERAL DESCRIPTIONS, EVERY CASE IS DIFFERENT AND A LICENSED FLORIDA ATTORNEY SHOULD ALWAYS BE CONSULTED.
Click any of the questions below to find the answer you need:
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Q: Do I need a Lawyer to represent me in a Foreclosure Suit?
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Q: Upside down in a residential investment property? No Equity?
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Q: Do I need to be delinquent for the bank or lender to work with me?
What is a foreclosure suit?
A foreclosure suit is a real lawsuit.
A foreclosure suit begins when the lender files a lawsuit in the county in which the property is located. The time to respond to a foreclosure suit begins when you are served with a summons and a copy of the complaint. However, if the lender is unable to find you to serve you with a summons and a copy of the complaint, the lender’s attorney, after diligence search, may publish a notice of the suit in a local newspaper.
If you do not file a response to the suit within the time provided in the summons, [at least 20-days in Florida] the lender’s attorney may ask for a default. Once a default is entered, it can be very difficult to challenge the suit.
What is a lis pendens?
A lis pendens is a notice that is filed in the official / public records of the county in which the property is located. The lis pendens puts everyone on notice that a lawsuit has been filed that somehow concerns a particular piece of property.
Do I need a lawyer to represent me in a foreclosure suit?
Yes! Even if you are a Florida lawyer, you still, likely need a lawyer. A lawyer that represents himself has a fool for a client.
How long does a foreclosure suit usually take?
A foreclosure suit could take as little as three months in Florida if no defendant contests the suit. However, an uncontested foreclosure suit, due in part to the volume of such suits clogging Florida’s courthouses, typically takes five (5) months. If any of the defendants file responses and contest the foreclosure suit, it could take significantly longer.
How will a foreclosure suit affect my credit?
Most of the damage to a borrower’s credit is done when the foreclosure suit is filed, however, if the suit is resolved prior to a foreclosure sale, the damage to ones credit is diminished. Credit repair could also be a negotiation point in a resolution with a lender.
Upside down in a residential investment property? No Equity?
This is a condition were you owe the lender more than what your property is currently worth. Your position IS negotiable.
What is a loan deficiency?
A loan deficiency or deficiency is the amount by which the loan amount exceeds the value of the property.
What is a deficiency judgment?
A deficiency judgment is what a lender may seek following a foreclosure sale where the property is sold for less than the amount of debt owed on the property.
For example, where a lender is owed $300,000.00 on a piece of property, forecloses on that property and sells the property for $200,000.00, the lender may seek a money judgment in the amount of $100,000.00.
Once a lender has a money judgment, they could garnish wages, garnish bank accounts, or attach assets to satisfy the judgment.
In Florida, a judgment could remain on record and in your credit report for up to 20-years, or longer.
A deficiency judgment could also by sought years after a short sale has been completed.
Many people mistakenly believe that a lender’s agreement to accept the proceeds from a short sale, lets the borrower off the hook for any the deficiency.
However, this is typically not the case. Most lenders do not waive their right to purse a deficiency or later suit on the promissory note itself.
In fact, when a lender asks for updated personal financial information in order to determine whether or not to approve a short sale, such a request by the lender is merely a fishing expedition to gauge whether or not to pursue a deficiency judgment.
In this market, many of the institutional lenders are simply selling the opportunities to pursue deficiency judgments to collection companies. When a lender sells the opportunity to pursue a deficiency judgment to a third party, such a third party purchaser will likely pay the lender much more for the opportunity to collect on a deficiency judgment where the lender also provides a recent financial statement from the hapless borrower. IN SUCH MATTERS, OBVIOUSLY, IT IS IMPORTANT TO HAVE AN ATTORNEY.
Want to avoid a deficiency judgment?
After the foreclosure has taken place, the borrower has very little leverage to prevent a deficiency judgment.
The time to try to avoid a deficiency judgment, is prior to and during the foreclosure case.
A foreclosure suit is a real lawsuit. You need a real estate attorney, preferably an attorney with both real estate and banking experience.
Many borrowers are misinformed and make the mistake of not responding to the foreclosure suit after being served.
You must respond. A well-planned response may provide the leverage you need to avoid a deficiency judgment. Again, it is important to have an experienced attorney on your side.
What is a 1099?
A 1099 is an Internal Revenue Service (“IRS”) form number concerning debt forgiveness.
As a general rule, in the eyes of the IRS, debt forgiveness equals income. Therefore, if the lender does in fact agree to refrain from pursuing a deficiency judgment on a loan secured by something other than a borrower’s primary residence, whatever amount the lender forgives will likely be counted as income.
For example, where a lender forgives $100,000.00 in debt, the borrower would owe taxes on the additional $100,000 in income.
Does the lender have to issue a 1099?
Yes, but with a key exception. A 1099 is not required to be issued concerning the settlement of a disputed debt. Consult an experienced attorney.
What is a short sale?
A short sale is a sale of the property that collateralizes a debt that is sold for less than the amount of the debt with the approval of the lender or bank.
Such approval is often conditional.
The lender or bank often responds to the proposed short sale with an approval letter.
The approval letter is often imprecise and typically leaves the door wide open for the lender to later seek a deficiency judgment or sue based on the promissory note.
A SHORT SALE, WITHOUT AN AGREEMENT BY THE LENDER OR BANK TO CANCEL THE PROMISSORY NOTE OR OTHERWISE REFRAIN FROM PURSUING A DEFICIENCY JUDGMENT, DOES NOT PREVENT THE LENDER OR BANK FROM PURSUING A DEFICIENCY JUDGMENT OR SUIT BASED ON THE PROMISSORY NOTE. Therefore, it is important to seek competent legal advice.
What is a loan modification or loan mod?
A loan modification is where the lender or bank agrees to modify the terms of a promissory note.
A lender or bank may modify a loan by reducing the interest rate, increasing the term of the loan, reducing the principal balance, or a combination thereof.
Do I need to be delinquent for the lender to work with me?
The short answer is yes.
However, some lenders do work with borrowers who are not delinquent.
Additionally, some government-sponsored programs require borrowers to be current on their payments.
It is also important to understand the implications of failing to make payments under a promissory note. Failing to make payments is breaching a contract to make such payments. It will likely have significant negative consequences to a borrower’s credit rating.