Foreclosure Survival Guide

    1.          Introduction

            The first question I am always asked by clients who are in foreclosure is “How long do I have to get out?”  The truthful “lawyer” answer I always give and that clients never want is “It depends.”  There is a process that all foreclosure cases must work through from the initial filing of the case to turning over possession to the bank.  That process could be as soon as 90 days or could take several years.  You will receive notice of important dates in the mail so please read all communication carefully and mark your calendar.  You will know if the Sheriff is coming to escort you out of your home.  The more involved you are in the process, the better outcome you will have in your case. 

2.          Service of Process

             Service of Process is the most intimidating part of the foreclosure process.  This is when either the Sheriff or a process server finds you and hands you a copy of the court papers filed in your foreclosure case.  Proper service may be obtained when you accept the Summons.  There is no real advantage to avoiding process.  Getting involved with the process and taking action will only help you to achieve the best outcome for you.

3.          Time to Respond

                        The Summons will note the date and time of service of the court papers.  The Summons will also explain

           that you have 20 days from that date to file a response with the Clerk of Court and upon the attorney for the

           Plaintiff.  Doing nothing is the WORST thing you can do for your case!  If you fail to respond to the Complaint

           within twenty (20) days, the attorney for the Plaintiff may file for a “DEFAULT” against you.  You will receive notice

           by Court Order only after the Default has already been entered.  A Default essentially ends your opportunity to

           defend you case.  Please consult with a knowledgeable legal professional to learn what rights and options you

           have.

    4.          Litigation

            In general, litigation involves an exchange of supporting and related documents that may prove or disprove the case.  There may be written questions or depositions.  The experience of litigation will vary widely depending upon the facts of each individual case and the attorney or attorneys that are involved. 

    5.          Mediation

            Mediation is no longer required in a residential foreclosure case.  That doesn’t mean that it’s not available, it only means that you have to ask for it.  Usually both sides share the cost of mediation, which can average $150 to $300 per side.  The cost to attend mediation is usually a good investment for the homeowner.  I encourage you to submit any and all paperwork requested by the bank or lender prior to attending mediation, especially if you are requesting a modification.  Often times we find that mediation is the first opportunity for a homeowner to have contact with a bank representative that has authority to make a decision.  If the bank has all of the information they need to assess your situation, you may have a final answer at mediation, or at least you will be instructed as to what steps must be taken next and what result you may be able to expect.   

6.          Final Hearing

                         If you are unable to resolve your case through mediation or other settlement, the Judge will be the one to

            decide the outcome.  Most often, foreclosure cases are decided by Summary Judgment.  This means that there are

            no real issues of fact and the Judge can decide the case, based on the information contained in the court papers. 

            If you raised issues of fact in your response, a trial may be required to allow the parties to present evidence proving

            their case to the Judge, so the Judge can make a fully informed decision.  Whatever the method used to decide the

            case, a Final Judgment will be entered by the Court explaining the details of the property at issue, the itemized

            amounts due and owing, the sale date and a description of other rights and obligations.

7.          Foreclosure Sale

            If the foreclosure case has been decided in favor of the bank or lender, the Court will set a “sale date.”  This date is normally no less than 30 days from the date of the Summary Judgment hearing or trial date.  The bank of lender must publish a Notice of Sale in a newspaper circulated in the county in which your property is located.  On the date of the sale, your case will be called and the public will have an opportunity to “bid” on your property.  The bank or lender may accept a bid less than the final judgment amount, but normally would only accept the amount shown in the Final Judgment.  Following the sale, the bank, lender or bidder will be shown in a Certificate of Sale issued by the Clerk of Court showing the identity of the winning bidder and the amount bid.  Following the foreclosure sale, there is an opportunity to present any objections.  An objection may be based upon several factors, including failure to receive notice or some error has been identified.  If there are no objections within ten (10) days, a Certificate of Title is issued to the new owner and the sale is final.  The prior owner or tenants must vacate the property.  The Certificate of Sale and Certificate of Title will be sent by mail so the homeowner will be aware of the new ownership and can make preparations accordingly. 

8.          Alternatives to Foreclosure

a.     Modification

            Most often, a homeowner will apply for a modification of the existing loan following the filing of a foreclosure case.  This can be a very frustrating process.  Every lender has its own process and application for modification of a loan.  You may be able to call your lender for instructions, request the application be mailed to you or you may find an application for loan modification on the lender’s website.  The application will consist of several pages and a financial statement.  You will be required to supply proof of employment, income tax returns and other financial documents.  Most of the time the bank or lender claims they never received the application.  It is important that you take the initiative to follow up with the lender to ensure your application was received and is being reviewed.  The lenders have been inundated with applications for loan modifications and you can easily get lost in the system.  There are several different government programs in connection with loan modifications.  These programs are constantly changing so I encourage you to continue to check www.makinghomeaffordable.gov for new programs and eligibility. 

                           b.     Short Sale

            Short sale is when you ask the bank to accept an amount less than what is owed to satisfy your loan.  Every lender has its own requirements for approval of a short sale, but most commonly, you must demonstrate financial hardship AND have your property listed with a real estate agent for a minimum of 90 days.  If you are in a situation where you lost your job or other source of income, got divorced, your spouse passed away or simply cannot afford to pay a reasonable amount to stay in your home, a short sale may be the right option for you. 

c.      Deed in Lieu of Foreclosure

            Deed in Lieu of Foreclosure is similar to a short sale, only there is no buyer; you simply deed the property back to the bank.  Sometimes there is a program available where the bank will actually pay you to elect this option, even after foreclosure proceedings have begun.  Again, every lender has its own requirements, but like the Short Sale, you must demonstrate financial hardship AND have your property listed with a real estate agent for a minimum of 90 days.

d.     Bankruptcy

            If your financial situation is beyond repair with a home loan modification, you may need to consider bankruptcy as an alternative.  Depending upon your income, you may qualify for a Chapter 7, which would mean a complete forgiveness of unsecured debt.  You would still need to work with your lender if you would like to keep your home and can work a financial arrangement with your lender so that can happen.  If your income is above $41,000 single or $51,000 if you are married, you may need to file a Chapter 13 bankruptcy, which involves a repayment plan and offers different alternatives for the handling of home loans.  For more information about bankruptcy and the process, you can visit http://www.flmb.uscourts.gov/ or consult with a qualified bankruptcy attorney.

9.     Deficiency

Whether there is a Final Judgment of Foreclosure entered or you are approved for a Short Sale or Deed in Lieu of Foreclosure, there question always remains…what about a deficiency?  A deficiency is the amount of debt over and above the value of the property at the date of foreclosure sale or time of conveyance either by Short Sale or Deed in Lieu of Foreclosure back to the lender.  A deficiency presents two potential problems, debt still owed or Internal Revenue Service for taxes owed on forgiven amounts due.  Imagine you are approved for a short sale and sell your home for $100,000.00 LESS than what you borrowed to purchase it.  The lender may be able to seek a deficiency judgment against you for the $100,000.00 difference.  In the alternative, the IRS can come after you for taxes due on $100,000.00 for your windfall of forgiven debt!  Today, homeowners facing the loss of their primary residence don’t have to worry about that problem, as The Mortgage Forgiveness Debt Relief Act of 2007 currently provides that a deficiency in connection with a foreclosure or modification of debt relating to your primary residence is not taxable.  Please be aware, this valuable provision will expire at the end of 2017.  We do not know if any such relief will be extended or new program implemented that will afford similar protection.  It is very important to consider the tax consequences relating to modification and foreclosure.  If the property in foreclosure is not your primary residence or if you have just been served foreclosure papers, I highly recommend you consult a legal professional to discuss your options and their consequences.

10.  Conclusion

Just last week, a client said to me “If you think education is expensive, try ignorance!”  How true!  I hope this informational book has provided you with some answers to your questions about foreclosure and put your mind at ease, at least as to the foreclosure process, what you can expect and some alternative forms of action that may be right for you.  I encourage you to consult with a knowledgeable foreclosure attorney so that you are fully aware of the alternatives available to you for your particular situation.  Thank you for your time.  God Bless and I wish you the very best outcome in your personal situation.