Many of our clients who cannot (or will not) pay their mortgages decide to go to extremes and not pay anything associated with the property. To this, we tell them that there are at least three things they should keep paying if they are able to do so:

• Hazard Insurance (including Liability coverage).

Most people also call this "Homeowner's Insurance." This insurance covers damages to the property, injuries incurred by visitors, tenants and residents (sometimes even when the injuries occur away from the insured property), and loss or damage to the homeowner's personal property such as furniture, electronics, clothing, jewelry, artwork, and electronics. If you stop paying your homeowner's insurance and let the policy lapse, the lender may force place their own insurance. However, this insurance -- in addition to being extremely expensive -- only covers damages to the dwelling itself in the event of fire or acts of nature. If someone breaks into the home and steals all of your belongings, or if a fire or storm destroys all of your electronics and furniture, you have no coverage from the lender's force-placed insurance. You simply lose everything, and it's up to you to replace it at your expense. For this reason, it's wise to continue to pay the hazard insurance premium. Although it may have been escrowed each month with your mortgage payment to the lender, there is nothing to prevent you from paying for the policy to the insurance company directly when the premium is due.

• Homeowners' / Condominium Association Assessments or Dues

While a lender has to produce and original note and mortgage and jump through a lot of other regulatory hoops before it can complete its foreclosure, an owner's association has a much lower burden to bear before foreclosing on your property. For this reason, the owners association can foreclose much more quickly than a lender, and may do so in an effort to take control of the property and rent it out (even if for a short time) to a tenant in an effort to recoup unpaid assessments. If at all possible, it is best to continue paying these assessments as they come due.

• Real Property Ad Valorem Taxes

In Florida, if ad valorem taxes are unpaid for over two years, then the property may be sold at a tax deed sale. This process also is much faster than a mortgage foreclosure action. Such a tax deed sale will wipe out your ownership as well as the lender's mortgage lien on the property, and put the new owner in possession of the property quickly. For this reason, it is best to pay taxes that are over two years old to avoid the tax deed sale possibility.

In the rush to strategically default, don't throw out the baby with the bath water.

Recently, I had that experience when a couple came to me for advice. They had found a house they wanted to buy at the foreclosure sale. The same bank had at least two or three mortgages on the property that they knew of prior to attending the sale. They knew this because they checked the online records at the courthouse before going to the auction. They had looked at the house and other houses in the neighborhood to come up with an idea of what the house would be worth at the sale and after they did their repairs. They even discovered a code enforcement lien or two on their own and determined how much those would cost to clear after purchase.

They felt that they had a grasp of every detail about the property and had no idea that they should spend $250.00 to have a professional title examiner or attorney conduct a full title search of the property. They went to the auction and -- to their happy surprise -- discovered that the bank's top bid for the property was going to be tens of thousands of dollars less than the amount owed on the mortgage. They started bidding. More seasoned bidders at the sale thought they were "newbies" to the auction who were trying to get into the "game" of buying and flipping foreclosed homes. The old salts deliberately drove up the bids. When they learned that the elderly couple only wanted to buy the home for their son and grandchildren to live, the bidding war stopped, and the couple got the house.

They poured tens of thousands of dollars into the home for repairs and code enforcement lien payoffs. After several months of hard work, their family was able to move into the home. Soon after, they received a letter from the foreclosing bank. The letter explained that the couple had purchased the property at the foreclosure sale under the bank's third mortgage. While the purchase price was enough to pay off that mortgage, the bank still had two more mortgages on the property, and -- if they wanted to avoid being foreclosed -- they needed to cough up over $50,000.00 more to the bank. That's when they came to us.

Fortunately, they were eventually able to settle with the bank for less than what the bank wanted, but it was a cost they never intended to bear and it dug deeply into their retirement savings at a time when they simply don't have any more time to make it back at their age.

If they had spent about $250.00 on a title search of the property before going to the sale, the examiner would have pulled the actual complaint in the foreclosure suit along with all of the other documents in the foreclosure docket. Only in those unrecorded documents was it clearly stated that the bank was foreclosing its third and most-junior mortgage, leaving the other two ahead of it. Then they would have known that they would have been purchasing the property subject to two prior mortgages. At that point, they probably would have passed on the auction and waited for the bank to be the successful bidder at the sale. The old salts at the sale knew this. Our clients didn't.

This is not an uncommon tactic for a lender with multiple liens to take when exercising its rights to foreclose. It is completely within its rights to elect which mortgage to foreclose first. It is up to the foreclosure auction purchaser to beware and spend a little money up front to avoid losing a lot of money later.

In short, it's much too complicated to cover in a blog entry. So, instead, we are suggesting that clients first explore the Department of Health and Human Services website that explains the details of the new law and how it will affect you and when. The site is very useful and chock full of information, but the quickest way to view the new law's effects is the timeline provided on the site. By scrolling through the timeline, one can see what provisions will be implemented and when, and then obtain more details on how they work.

If you have questions about the new law and how it will affect you, we recommend that you check out this site for some education before you call us or your financial advisers for information. 

We are also surprised at how often the buyer simply lets the seller, especially REO sellers such as Fannie Mae and foreclosing lenders, dictate where the closing is conducted. The general rule is that the party who is paying for the owner’s title insurance policy is the one who chooses who issues that title insurance policy. The FNMA addendum to contract, since early 2010, has permitted the purchaser to choose the closing agent. However, for whatever reason, many buyers continue to simply let the REO seller choose the closing and title agent.

Another confusing issue is that most buyers don’t push for their choice of closing agent when they are purchasing a short sale. Sure, they may have to pay the owner’s title insurance premium, but – with a little shopping for price and quality – the buyer can have their chosen title company handling the closing. The buyer has a lot invested in ensuring the short sale closing is completed in a timely manner. If the seller’s lender makes more money at the closing because the buyer is paying the title insurance, that may be the little “grease” that helps the closing clear the short sale lender’s objections.

Few title companies, such as PCS Title (our sister title company), understand that every little bit can help in getting the REO or short sale closing completed. To that end, PCS now gives a “Butler Rebate” of 40 percent of the owner’s title policy premium on every closing. This portion is deducted from the agent’s portion of the overall title insurance premium and is in addition to the discounts available for reissue credit or substitution rates. The higher the value of the policy, the greater the rebate.  We have found that, when such rebates are offered, buyers find it more appealing to choose their own title company to handle the closing, and the lenders find it more appealing to approve the sale, knowing that they’ll be pocketing more money to cover their losses.

So, if you’re buying a short sale or an REO, don’t hesitate to designate the title company. If doing so means that you must pay the owner’s title insurance premium, then be sure to use a title company that rebates a portion of the title premium to the one who is paying for it.

Zenaida Gomez purchased an investment home in Pinecrest in Miami-Dade County. She leased it to Mr. and Mrs. Herrera after meeting with Mrs. Herrera and obtaining a copy of her driver’s license. She would go to the home to collect rent for the next two months. She never went inside the home, nor did she ever meet Mr. Herrera. The Pinecrest Police Department, acting on an anonymous tip, discovered that the home was being used as a hydroponics lab to grow and harvest marijuana plants.

Real property may be seized pursuant to Section 932.704, Florida Statutes, when it is used to conceal, transport or possess contraband such as illegal drugs, methamphetamine labs, or other illegal products. The Court, interpreting the statute, held that the seizure is a two-step process. First, the seizing agency (in this case, the village police department) must prove it is entitled to “seize” the property, and secondly it must prove it is entitled to forfeiture of the property.  To seize the property, the owner of the real property must be given notice of the right to have a hearing. At the hearing, the agency must prove only that the property was used to conceal, transport or possess contraband. There is no need to prove that the real property’s owner had any knowledge of the illegal use of the property.

Once this illegal use is proven, the agency may take control and possession of the property to protect it from destruction or further illegal use until a full forfeiture hearing can be held.  In that second phase of the process, the agency must prove by a preponderance of evidence that the property’s owner knew or should have known after reasonable inquiry that the property was being used, or likely to be used, in an illegal enterprise. If the agency can meet this burden of proof, then the property will be forfeited to the agency for destruction or other disposal.

At the first stage adversarial proceeding, the agency in this case presented evidence that Ms. Gomez had never inspected inside the home and had never met her male tenant. They asserted that this was sufficient evidence to prove her knowledge (or that she should have known) that the home was being used to possess or conceal illegal contraband. The Court held that this was not necessary at that stage of the proceedings. At the first stage of the proceedings, the agency only had to prove that the investment home was being used to possess illegal contraband.  Therefore, the agency had the right under the statute to take control of the home after the first hearing.

This case is a wake-up call to landlords who fail to conduct background checks on their prospective tenants (or even meet the tenants face-to-face prior to renting the property), or who neglect to periodically inspect their properties (occupied or vacant) to ensure they’re not being used in illegal activities. If the property is being used in such activities, it is clear that – under this court’s reasoning – the property can be seized at least temporarily and may be forfeited forever.

These offers are the first step to a scam. If the recipient responds to the e-mail offer, they are quickly pounced upon with urgent requests for address and bank account information. The e-mails are usually written in improper or broken English, with bad punctuation, misspellings, and convoluted stories. The goal usually is for the scammer to deliver to the victim a counterfeit certified or official bank check for an amount that is in excess of the amount needed for the requested transaction. The excess is then to be wired to another account to purchase property, or refund to the sender immediately after the counterfeit check is deposited.

Today, we received a letter purportedly from an attorney with the law firm of Tanzola & Sorbara in Ontario, Canada. The letter was a transmittal of a check for $155,000.00 drawn on the law firm's "general account" (whatever that is). The transmittal letter informed us that the enclosed check was for the earnest money deposit and purchase price of a closing we were to be conducting (we had no idea who the parties were, or what property was being conveyed) and that we were to immediately notify the sender, via e-mail, once we had deposited the check into our firm's trust account. The check and letter appeared to be printed with an ink-jet printer. The phone number of the firm that was printed on the letter did not match the actual number of the law firm as printed on the law firm's website. The spelling of the amount of the check was incorrect, and the firm's mailing zip code in Canada was incomplete on the letter. When we contacted the law firm directly (via the phone number on their website that we found via Google, rather than the number on the scammer's letter), we were informed that they had been receiving calls for the past four months from Florida attorneys who had received the same bogus letter and counterfeit checks.

If we had deposited the counterfeit check into our trust account and notified the scammer at the bogus e-mail address noted in the transmittal letter, I am confident that he would have informed us that the funds had been sent to us in error; that a closing was pending in another office, and we would have been instructed to wire the funds directly to the "correct" closing attorney. Had we fallen for the scam, we would have wired out the funds before the counterfeit check had time to bounce. The bank would not have been liable for the problem. We would be responsible and have to fund the new shortage in our trust account from our own funds. That's $155,000.00 we would have lost with no hope of recovering it from the bad guys.

Likewise, if the investor, private lender or REALTOR falls for the scam, they too could lose funds, or -- worse -- control of their accounts to the bad guys. So the next time you receive an unsolicited offer that sounds too good to be true, it is.

Helpful sites:

http://www.snopes.com/

http://www.floridabar.org/DIVCOM/JN/jnnews01.nsf/cb53c80c8fabd49d85256b5900678f6c/95615ae98e5d30838525774900404fc1!OpenDocument&Highlight=0,scam*

http://www.scamdex.com/

After a lender forecloses, the lender may elect what they want to do regarding the balance of the funds they are owed under the mortgage note. It is customary, especially now, that the property that was foreclosed was not worth the amount owed under the final summary judgment of foreclosure. As such, the value of the property is "deficient" to cover the amount owed to the lender.

Based on the lender's decision, they will have a choice as to whether to issue IRS form 1099-A or 1099-C. The 1099-A merely means the lender has taken possession of the secured collateral for the loan (the land) but they have not yet written off the debt. If a borrower discovers that the lender has issued a 1099-A, then chances are that the lender will continue to pursue the borrower for payment in full of the debt. If the lender issues a 1099-C, it would indicate that they have written off the balance of the loan amount and are calling it a day. This is not always the case, but is more likely than not.

If the lender wants full payment for its loan amount, it may seek a deficiency judgment through the same foreclosure lawsuit that permitted the bank to take the property in the first place. The only instances where we have consistently seen local (Central Florida) lenders seeking deficiency judgments are in Bella Collina and Reunion (both Ginn developments that were purchased almost exclusively by investors intending to flip the properties).

If the lender wants to pursue a deficiency, they have up to five years after entry of the foreclosure summary judgment to file their motion for deficiency judgment. At that time, they must provide an appraisal acceptable to the court that proves the value of the property on the date that the summary judgment of foreclosure was entered. A borrower can also obtain her own appraisal to see if they can get a higher value. This will then become a battle
of appraisals. If the borrower's appraisal comes in at a higher value, then it could sway the judge to reduce the amount of the deficiency judgment.

Such judgments will be a lien upon all real and personal property owned by the debtor in the county where it is
recorded. Also, the lender can record the lien on a statewide level, and it will be a lien upon all personal and intangible property held by the debtor anywhere inside Florida. The judgment may also be certified and recorded in any other county where the debtor owns real property so that it becomes a lien upon that real estate.

The lien is valid and enforceable for 10 years, and may be renewed for another 10 when it expires. It will not attach to exempt property (i.e. homestead property, retirement accounts, and certain wages), and the creditor bank will usually pursue collection of the judgment. If the debtor declares bankruptcy, then the judgment (if included in the petition for bankruptcy) will be extinguished.