Florida Asset Protection : Asset Protection Law & Planning in Florida - Florida Homestead Exemption

To date, mortgage modification when available involved lowering interest rates and deferring arrearage in order to lower monthly payments but without any reduction of principal toward current market value. Soon, many homeowners will find their mortgage lenders willing to reduce principal balance as part of mortgage modification. The government’s mortgage modification program known as HAMP (Home Affordable Modification Program) issued a Supplemental Directive 10-5 which encourages lenders to offer principal reduction to underwater homeowners. The Directive is effective October, 2010.

Supplemental Directive 10-5 states theat mortgage lenders must evaluate any loans being considered for mortgage modification using an alternative analysis which reduces unpaid principal to a level that helps the homeowner achieve the target monthly payment of 31% of gross monthly income. Principal can be reduced until the loan balance is 115% of current market value.

Mortgage lenders must consider modification of loans on primary residences for people 60 days delinquent in mortgage payments. It helps to understand the guidelines before discussing mortgage modification with your mortgage lender. The HAMP program rules are available on the internet. If you cannot understand the HAMP guidelines you should get help from someone in the real estate business who does understand.

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People with problem mortgages ask me frequently what the mortgage lender and their attorneys will do if they walk away from their upside down home mortgage. What can they do to get a release of liability and what are the chances the lender will pursue a deficiency judgment? These are common questions. This past weekend I got a glimpse into mortgage lender strategies by speaking with an attorney friend named Norman Farquhar who has worked for a large mortgage foreclosure firm in Tampa for two years. He recently left the firm. Norm Farquhar is an experienced real estate litigator. He says he is typically assigned the most contentious and heavily defended foreclosure cases. Over the past two years he said his firm took in about 1,500 new foreclosures each and every month.

I asked Norm how many first mortgage deficiency judgments he or his firm pursued in the past two years. Zero. Not one. None of his clients have ever asked his firm to file for a deficiency. He also said he was unaware of any of his client banks selling deficiency claims to investors. His firm never received any inquiries from investors about purchasing their clients’ deficiency claims. Asked why there has seen no deficiency claims to date, Norm speculates the reasons are first, that the banks and the law firms are still swamped with work(he said his firm is farther under water than the homeowners mortgages) and second, because it is much more difficult and expensive to pursue and collect a mortgage deficiency judgment than it is to foreclose and take back title. Norm says he hopes some banks will pursue more deficiency claims when the market settles down because it would mean more work for attorneys who do what he does.

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A very skilled and busy mortgage defense attorney told me that he sees some mortgage lenders bypassing foreclosure and suing borrowers directly for default on the underlying mortgage note. When you buy a house you sign a promissory note to evidence the obligation to repay the house loan. The mortgage is a security instrument that gives the lender an interest in the house which he can foreclose if you default. Your personal obligation to the lender is based on the underlying note. A lender has the option to sue you for repayment under the note without foreclosing the mortgage. If the lender sues on the note, you, the borrower, will have a personal judgment against you for your default under the note, and the lender still retains his mortgage security in most jurisdictions. So, why would a lender chose not to foreclose a mortgage on your home and sue you directly on the note.

The mortgage defense attorney and myself came up with some good reasons why mortgage lender should not foreclose a home loan:

 

 

1. The government has given homeowners more rights under the government mortgage modification program (HAMP) which regulations make foreclosures slower and more expensive for banks.

2. Recently enacted Florida laws and local court rules require mediation proceedings in all foreclosure cases which further delays foreclosure proceedings.

3. Banks who take back properties on foreclosure have to deal with delinquent HOA bills, unpaid taxes, and house repairs.

4. House values are declining again. Banks recover less money than before on repossessed property, whereas costs of maintaining the properties is not going down.

5. Legally, its much easier for a bank to get a personal judgment against the borrower through a suit on the note than it is to get a personal judgment in a deficiency claim after foreclosure.

6. Many foreclosures involve ocean front condos and houses. The BP spill’s damage to the shoreline may result in environmental damage to ocean front property. Banks do not want to foreclose and take over ownership of potential environmental liabilities.

 

 

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There is much discussion in local and national media about strategic mortgage defaults. Strategic default occurs when a homeowner decides to walk away from an upside down mortgage when the homeowner has the income to pay the mortgage payments. The homeowner decides that it is not in his best financial interest to continue to pay a mortgage on a home with no equity.

Locally, Orlando Sentinel report Beth Kassab has written several articles recently on the topic. She states that to date most banks have not pursued personal deficiency liability on first mortgage foreclosures, but she then quotes an attorney who claims that lenders will increasingly pursue or assign deficiency claims in the future. I have heard many attorney forecast that deficiency actions will become the norm in future years as either banks have more time as foreclosures decrease or as borrowers recover financially as the economy improves.

The national media has also recently run segments on strategic defaults. These are two examples from MSNBC and Fox News, respectively. Most of these reports emphasize the risk of rich people walking away from mortgages and warn against future deficiency judgments.

Maybe some other attorneys or reporters say they know what banks will do next year, but I admit I do not know for sure what actions banks will consider next year, or the year after, to be in their best interest. I cannot predict the future of deficiency claims.

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The Wall Street Journal published an article this past Tuesday by James R. Hagerty on "strategic mortgage defaults." Aa "strategic default" occurs when a homeowner who can afford to make mortgage payments decides to stop paying and allowing the bank to foreclose. The article states that strategic defaults are often motivated by "anger, fear or despair." Mr. Hagerty states that strategic defaults may be rational response by underwater homeowners. In any event, the percentage of mortgage defaults by people who could afford payments has risen substantially in the past two years. The article suggest ways to reduce strategic defaults.

In my asset protection practice I have consulted with many, many people about the consequences of voluntary mortgage defaults. In most, but not all cases, I have advised my clients whose homes are substantially upside down in value to let the bank foreclose rather than deplete retirement funds and savings accounts. Up to now, this advice has turned out well for most, if not all, of my clients facing foreclosure. I and my clients have found that most large banks are not aggressively pursuing either deficiency claims or the collection of deficiency judgments.

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I don’t defend mortgage foreclosure suits against my asset protection clients, and instead, I refer people to one of several real estate litigation attorneys who do a good job forestalling foreclosures and negotiating releases of personal liability. I spoke this weekend with one such foreclosure defense lawyer about his foreclosure defense tips.

This attorney  said that many people expect him to assert the most aggressive and comprehensive defense against the bank’s foreclosure. Many people have heard of foreclosure defenses based on Truth in Lending violations and technical defects in the bank’s HUD statement and other closing documents. This attorney explained why in his opinion the maximum defense is not always the most practical defense. He said that his clients realize that they cannot ultimately escape foreclosure, but that most are willing to relinquish their home for a release of deficiency liability.

He has found that most large lender foreclosure firms have at least two groups of attorneys. The most experienced litigators deal with the most complicated mortgage foreclosure cases, including those cases where the borrower’s attorneys have raised sophisticated legal defenses. Most foreclosures, including uncontested cases and the basic defenses, including the "lost instrument defense" and technical legal procedure issues, are handled by less experienced attorneys and other staff.

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Many people do not understand the significance of tax form 1099 in the foreclosure context. A 1099 is an IRS reporting form indicating that the lender has written off a mortgage and is declaring a tax loss. The borrower may have to declare the bank’s loss as imputed income. There are many exceptions to imputed income discussed in previous blog posts.

If a lender forgives a borrower’s personal liability on a mortgage the lender is supposed to issue a form 1099. Liability waiver always results in the issuance of a form1099. But is the opposite true? Does a form 1099 always result in a release of borrower liability? A reader submitted by email the following question:

If you receive a 1099 for imputed income from a lender, can the lender also seek a deficiency judgment

?

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Finally, one of my clients reported a common sense resolution to an upside down mortgage. This man’s primary residence in Florida, like so many other homes, was substantially upside down. Short sales did not work because buyers did not want to wait for the bank’s long approval process. The bank foreclosed. This case had a happy ending. The bank agreed to take back the property and give the man a full release of liability. Even more, the bank paid the man cash back to pay for his moving expenses. "Are you serious", I asked. "Yes", the man replied. Its "Cash For Keys."

Yes, there are some mortgage lenders who will pay you to surrender your upside down house and move out. My client explained that the "cash for keys" offer is contingent upon the buyer delivering the house in good condition. The bank’s representative explained that many homeowners purposefully damage homes in foreclosure and remove appliances and fixtures. It makes sense. The lenders gets control of the property and can avoid its physical deterioration. The lender can more quickly put the house on the market and minimize its expenses. The borrower receives an unexpected cash reward for cooperation.

There have been press reports about cash for keys programs. These programs are not yet widespread but they may be increasing as mortgage lenders experience dissatisfaction with traditional foreclosures.

 

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A caller asked me whether imputed income after a foreclosure on an investment home when the owner had taken the home off the rental market for a year before the foreclosure. I’ve written previously on this about the income tax effect of foreclosure and 1099 debt forgiveness on rental properties. I’ve stated that my own accountant, Mr. Lonnie Young of Lake Mary, Fl, told me that 1099 income on rental property can be offset by investment losses so that foreclosure and debt forgiveness usually will not increase income taxes. This caller was concerned that his removal of the property from the rental market and subsequent vacancy, would disqualify the property as a "rental property."

I posed this question to Mr. Young. Here is a summary of his explanation of the general income tax rules for mortgage foreclosure and his answer to the caller's question. Assume one real estate investor (I’ll call him "Moe") purchases non-income producing property, such as vacant land, and his friend (I’ll call him "Larry") invests in income producing rental property, such as vacant land.. Assume that both Moe and Larry lose their properties at foreclosure sales, that both properties are "upside down" and that both taxpayers receive a 1099 income form from their respective lenders representing imputed income for debt forgiveness.

Mr. Young explained that Moe’s investment in non-income producing property is a capital investment for future appreciation. Moe’s losses in his real estate investment is a "capital loss" which can offset his capital gains for that year, but Moe’s capital loss greater than his capital gain for same year can offset only a small amount ($3,000) of other income in that year, with the balance carried forward to future years.

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One of my asset protection client introduced me to an attorney in Tampa, named Mike, who has a very large and successful practice defending mortgage foreclosures and negotiating mortgage modification. I spoke with Mike and asked him about his client’s experiences during court-ordered mediation with their mortgage lender during foreclosure litigation.

Mike said that mediation in state court proceedings is usually a waste of time for his clients. He listed several reasons why foreclosure mediation infrequently results in successful mortgage modification and foreclosure forbearance. For example, he said that there are so many foreclosure mediation that lenders usually send a foreclosure "clerk" with minimal authority to offer anything other than the lenders "in-the-box" standard modification packages for which, he said, few clients qualify. He said that the lender’s attorney see mediation as a temporary hurdle in their march toward foreclosure judgment and possession of the property. There are so many different state court judges with their own procedures that there is little uniformity how trial court’s treat mediation.

Mike said he is having success in mediation ordered by the appellate court. When an appeal is filed our appellate court (the Fifth District Court) orders almost all foreclosure cases to mediation. No briefs are due until mediation is completed. The attorney says lenders send more senior representatives to appellate mediation and they take more seriously mortgage mediation ordered by an appellate court. Appellate mediation is uniform because there is just one appellate court in our district.

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The Orlando bankruptcy court is preparing to adopt a rule providing for mandatory mediation between homeowners and their mortgage companies to facilitate mortgage modification. Congress rejected a change in the bankruptcy code that would have empowered Chapter 13 debtors to force reduction in their first mortgage principal to their residence’s current fair market value.

This proposed procedural rule will not circumvent the bankruptcy code law and will not force reduction of first mortgage principal. What the Orlando local rule will do is enable Chapter 13 debtors by motion filed with the Orlando bankruptcy court to compel a bank representative with full authority to modify their mortgage to meet with the debtor and an independent mediator to negotiate in good faith a possible modification of the debtor’s first mortgage terms. This bankruptcy rule should make Chapter 13 bankruptcy attractive to homeowners who want to save their homes provided they can obtain a reasonable modification of their mortgage.

The Florida Supreme Court is requiring mediation in state court foreclosure cases. This state court rule is helpful, but the bankruptcy court rule could be better for homeowners. In state court procedures the homeowner has to be in a foreclosure case before having the opportunity to mediate with a bank agent with full authority. The homeowner first has to stop paying the mortgage for at least three months, wait for the bank to file a foreclosure lawsuit, hire a civil attorney to answer the lawsuit, proceed for several months in civil litigation, and then at some point, arrange for a court ordered mediation.

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Mortgage foreclosure defense has become a good business for attorneys. Many real estate attorneys who made money on real estate closing and putting together large real estate investment deals have found that most of their business in the past few years has come from clients wanting to defend against bank foreclosures and suits on personal guarantees of commercial loans. As in any area of law there just a few attorneys with special experience and credentials which enables them to do the best work. This past week I met an attorney (name withheld upon request) who seems uniquely qualified to defend bank collections of large real estate debt.

This individual formerly worked for a government task force which prosecuted banks for improper lending practices. His government agency enforced actions against lenders for their violations of the many technical regulatory requirements and consumer protection rules applicable to mortgage or commercial. He uses this experience today in private practice to defend bank lawsuits by raising technical defenses based on the bank’s failure to comply with same applicable rules and regulations he previously enforced on the government’s behalf. He states that there are so many rules and regulations applicable to bank lending that in almost every loan or guarantee the plaintiff bank is in violation of some government requirement. He said he can find a bank violation in almost every bank lawsuit and use the violation as an effective defense or even threaten the bank with a counter-claim.

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The biggest complaint I hear from clients facing potential home foreclosure is that they cannot communicate with anyone from their mortgage lender who has authority to modify their loan or otherwise help them avoid losing their home. People say, "I want to save my home but the bank won’t talk to me about a workable solutions." The Florida Supreme Court is trying to improve this problem through required mediation. The current issue of the Florida Bar News reports that the Florida Supreme Court has approved a managed mediation program recommended by its Task Force created last year to help courts deal with Florida’s foreclosure crises.

The Task Force reported that lack of communication between banks and borrowers was the most significant problem in foreclosure cases. Under the new managed mediation program all residential foreclosure cases will be referred to mediation by Supreme Court certified mediators. The bank must pay all mediation expenses.

Court-ordered mediation requires that both sides, including the large mortgage lenders, have someone present at mediation with full authority to resolve the foreclosure dispute. If the mortgage lender does not have someone with full authority at mediation the court may sanction the lender. Mediation is probably your best opportunity to make a fair deal with your mortgage lender if a deal is possible in your case.

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I am often asked whether or not I have seen changes bank policy regarding pursuit of deficiency judgments after first mortgage foreclosures. I am working on an interesting asset protection case as co-counsel with an attorney who is very experienced defending mortgage foreclosure suits. . Because I have not asked permission to used his real name, I’ll refer to him in this post as "Brad." Brad practices in Lake County, Florida, which is part of "central Florida." Brad told me an interesting story last week.

Brad said he attends monthly Bar meetings frequented by most of the civil court judges and most prominent attorneys in Lake County. He says that he has known most of the judges for many years. At the most recent meeting Brad told me he discussed the foreclosure environment with one of the local judges. This is what the judge told him. In Lake County, Florida, from the beginning of 2008 through the first half of 2009 (when statistics were last reported) there were approximately 11,000 first mortgage foreclosures against residential homeowners. The figure does not include foreclosures of commercial loans. Of the 11,000 first mortgage foreclosures, the number of motions for deficiency judgment was zero. No deficiency motions; no deficiency judgements.

Brad told me that in the past two years he defended about 100 lawsuits filed by second mortgage holders. The second mortgage lawsuits were suits based on the underlying promissory note rather than mortgage foreclosures. He said most of these lawsuits were settled, and that none of the settlements exceeded 20% of the second mortgage balance.

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Just a few days ago I posted an article about banks luring homeowners into signing  false deeds in lieu of foreclosure. Here's the first example. Friday, I received the following email from an attorney who has an active and successful mortgage defense practice:

"I had a client retain me with a deficiency judgment suit this morning. Peoples Bank. They offered him a deed in lieu telling him it would resolve the claims. He signed the deed. Although the DIL started with language which said "this deed is an absolute conveyance in satisfaction of the mortgage", it had one sentence hidden in the document which says "Grantee acknowledges that Grantee reserves the right to proceed with a deficiency decree".

In the old days, a deed in lieu was an exchange of property for a release. Today, many banks are using the "deed in lieu" as a way to avoid the time and expense of foreclosure without releasing the homeowner from anything. They are presenting deed in lieu offers to homeowners who are not represented by attorneys  that the offer does not include a true release of the homeowner. In signing a deed in lieu you will lose all your foreclosure defenses which you need to negotiate favorable settlements with the mortgage company.

So, I warn all you people with upside down houses and delinquent mortgages- if your lender offers you a deed in lieu of foreclosure make sure you read all the fine print when they send you the documents. Better yet, consult an experienced real estate attorney who has been helping people defend foreclosures (not me; I don't do that type of work).

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Why won't my mortgage company offer me a reasonable mortgage modification? Why would they choose to foreclose when with just a little help I can pay the mortgage. These are questions I hear all the time from clients concerned about deficiency liability following a prospective mortgage foreclosure.

I usually advise the questioners that their mortgage lender will not agree to a workable mortgage modification (despite Washington's modification program) because the mortgage service company is not able to provide a reasonable modification or its not in their self-interest to modify.
I saw a blog post from bankruptcy attorney Craig Andresen that sheds some light on the modification problem. He writes:

None of the sources referred to here discussed what could be the real reason for the astonishingly small number of modified mortgages: most mortgages owed on the homes of American consumers are owned by securitized trusts. The trustees of these trusts may lack the authority to compromise on the amounts due under the terms of the mortgages. Having no authority to modify these mortgages, none are being modified. Instead, meaningless "trial modifications" are being offered as window dressing. Thankfully, the real story is beginning to emerge

This make sense. Borrowers should keep in mind that the mortgage industry build a very complicated "house of cards." A result of the complicated financial structure is that is difficult for the lenders to focus on one mortgage at a time and make unique settlement modifications based on the facts of each borrower's circumstances. I've been told by attorneys representing the lenders in foreclosure suits that their biggest frustration is finding people working for their own clients with authority to approve settlements. Mr Andresen's blog post is consistent with my clients' experiences.

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Each week I talk to several people about negotiating a deed in lieu of foreclosure with their mortgage lenders. Like so many people around the county, these clients are experiencing problems paying mortgages on their upside down real estate. I typically tell people that as long as they are current on their mortgage they are wasting time trying to convince a mortgage lender to accept a deed in lieu.

Banks will not consider a deed in lieu, short sale, modification or any other work out proposal until the borrower is in default, and usually not until loan payments are at least three months past due. My clients report that it is impossible to negotiate a deed in lieu until the property is in foreclosure; one reason is that until a foreclosure lawsuit is started and both sides are represented by attorneys it is difficult for you or your attorney to reach a bank representative who has authority to negotiate a deed in lieu or modification.

So, I was surprised today when a client reported that his mortgage lender readily accepted a deed in lieu on one of his upside down rental homes after he was only two months behind in mortgage payments. Was it true, and were lenders finally beginning to accept owner's offers to voluntarily deed back properties in lieu of foreclosure? Not exactly.

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Each week I talk to several people about negotiating a deed in lieu of foreclosure with their mortgage lenders. Like so many people around the county, these clients are experiencing problems paying mortgages on their upside down real estate. I typically tell people that as long as they are current on their mortgage they are wasting time trying to convince a mortgage lender to accept a deed in lieu. Banks will not consider a deed in lieu, short sale, modification or any other work out proposal until the borrower is in default, and usually not until loan payments are at least three months past due. My clients report that it is impossible to negotiate a deed in lieu until the property is in foreclosure; one reason is that until a foreclosure lawsuit is started and both sides are represented by attorneys it is difficult for you or your attorney to reach a bank representative who has authority to negotiate a deed in lieu or modification.

So I was surprised today when a client reported that his mortgage lender readily accepted a deed in lieu on one of his upside down rental homes after he was only two months behind in mortgage payments. Was it true, and were lenders finally beginning to accept owner's offers to voluntarily deed back properties in lieu of foreclosure? Not exactly.

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A good percentage of my clients over the past three years have been trying to save homes from foreclosure by modifying their mortgages. Successful modifications are becoming more common, but still, the vast majority of people who call me state that their mortgage lender is not willing to modify their loan in a way that would permit the borrowers to maintain the mortgage until the housing market recovers. Clients wonder, and they asked me, why their mortgage company would rather force them into foreclosure than modify the mortgage so that the loan can be paid. Why, clients asked, would the bank want their vacant property rather than whatever amounts of money the clients can afford to pay.

I just read an interesting article by Mr. Richard Kessler, CEO of a web based company called www.cancelthemortgage-now.com, about the mortgage lending industry's loan modification policies. Mr. Kessler suggests several reasons why mortgage service companies have difficulty entering into flexible mortgage modifications and why they have rational reasons to foreclose delinquent mortgages. His article tries to explain the difficulty you may experience trying to modify your own home mortgage. Rather than try to paraphrase the article, I offer selected portions for your own reading:

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As previously mentioned on this Blog a new federal law protects tenants of foreclosed properties. The law requires the lender to honor the terms of bona fide leases after the lender takes back the property at foreclosure sale. At least one federal lender, "Freddie Mac" is offering to pay tenants to move out of properties after foreclosure. I received a letter from a law firm representing Freddie Mac addressed to the "unknown tenants" who leased and occupied a foreclosed house wherein Freddie Mac offered the tenants $4,000 cash to leave the property in 30 days. The proposed settlement required the tenants to deliver the property in broom clean condition. Freddie Mac offered to deliver a check payable to the occupants who sign the stipulation. Not only does the new tenant law protect tenants' lease occupancy rights after foreclosure, but the federal government mortgage agencies are now paying tenants to move into another dwelling.

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Tenants of single family homes had been facing sudden eviction when the homes they rented were sold to a mortgage lender at a foreclosure sale.  After the foreclosure sale the mortgage lender evicted the tenants even though the tenants' lease payments were current. To better protect tenants victimized by foreclosures against their landlords Congress passed a law which required the non-occupant purchasers at foreclosure sales (such as banks) to honor existing leases on the foreclosed property provided that the lease was bona fide and the tenants were not in default. Some "foreclosure defense" companies are using this new law to delay foreclosure law suits. These homeowners are creating bogus lease arrangements to prevent the lenders takeover of property and gain negotiating leverage for the homeowner.

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A couple consulted with me concerning a proposed short sale of an "upside down" investment property. They had give a purchase money first mortgage to Bank of America, and subsequently, borrowed additional money under a line of credit second mortgage from the same bank. A buyer had submitted a contract for about 90% of the first mortgage balance. BOA approved the short sale. They gave the borrowers a document to sign which said that BOA would release their two mortgage liens, but it did not state that the debt would be released. The bank told the borrowers that they had to speak with representatives of another department to discuss their personal liability after the short sale. The couple asked if they could speak with someone from the department about liability prior to signing the bank's documents which would contractually obligate the borrowers to complete the short sale. They were told that they first must agree to the BOA short sale terms before the bank would discuss their personal liability.

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Today, April 30, 2009, the Wall Street Journal published an article on Short Sales. The Journal report is consistent with items previously posted on this Blog. Foremost, the Journal warned that most lenders accepting short sales are not waiving personal liability or deficiency judgments. These lenders require the homeowner to sign a new promissory note for the short amount. I previously posted my opinion that short sales are a trap for homeowners. The buyer, lender, and real estate agent each gain from a short sale, whereas the homeowner is left with the same liability he would face if he let the property go to foreclosure. Actually, the homeowner is in worse shape- in the case of a foreclosure the lender would have to prove the property's fair market value in order to pursue a deficiency judgment. Proof of value takes time and money invested in attorneys fees and appraisals. When the borrower agrees to a short sale and signs a new note the borrower has liquidated value, that is, he has consented to a property value equal to the sale amount. Short sales still affect your credit, and even if the credit impact is less than foreclosure, you should consider whether the credit benefit is worth the liability. The Journal tells of one homeowner who walked away from a short sale ready to close when the bank insisted he sign a promissory note for the forgiven value.

There is another article in today's Journal about short sale which makes interesting reading for distressed homeowners. A Short Sale May Not Mean You're Home Free - WSJ.com. This article explains the potential income consequences from a short sale. Its a relatively clear and comprehensive explanation of taxation issues in mortgage debt foregiveness. I learned new things about the tax consequences of foreclosure. Read the article before you consider foreclosure or short sale, and always talk with your CPA to make sure you understand your situation. A bank may not chase you to collect  a deficiency judgment, but the Internal Revenue Service will likely pursue collection of income taxes triggered by debt foregiveness.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

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I have reported recently that some second mortgage lenders have become more aggressive by suing defaulting homeowners personally. I recently received an email from a litigation attorney representing New York residents who purchased an investment home in Florida subject to a first and second mortgage. I had referred the client for mortgage foreclosure defense. If the second mortgage holder (Chase Mortgage) had pursued a deficiency claim in the foreclosure proceeding they would have had to domesticate the Florida judgement in New York in order to pursue a personal claim against the New York residents. In this case, the second mortgage is pursuing a more aggressive (and more effective) attack against the borrowers by proceeding directly against the mortgage's underlying promissory note.

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The risk of  personal liability from a mortgage foreclosure depends on the nature of the mortgages and the lenders. Second mortgage holders are more likely than first mortgage holders to pursue personal liability after a foreclosure. Among second mortgage holders, the risk of personal liability after foreclosure also depends on the nature of the second mortgage loan. Second mortgage loans by large, national lending institutions were most often made to help finance the purchase of the property or to finance an addition or improvement to the property. These second mortgages are typically conforming FNMA mortgages which were sold on the secondary mortgage and ended up as part of a marketable security sold to investors (the so-called toxic mortgages). These second mortgage holders are less likely to sue the borrower after either the first or second mortgage holder forecloses on the property.

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I receive several emails and calls daily from people with problem home mortgages. This week several people have asked me whether they qualify for help under the government's new mortgage assistance program. I read an article in the Wall Street Journal that described the two mortgage assistance programs implemented this past week. The Journal article included a chart that helped explain the program benefits and qualifications. I have reproduced the Wall Street Journal chart to assist Blog readers. WHO WOULD QUALIFY

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A large percentage of the asset protection inquiries I have received in the past year have been from people concerned about a mortgage foreclosure on one or more of their properties. Most people who contact me are interested in asset protection from deficiency judgments. One of the issues I discuss with my clients facing a foreclosure and a potential deficiency claim is whether the homeowner should hire an attorney to defend the foreclosure even though the homeowner is  unable, or unwilling, to continue making mortgage payments. There are advantages and disadvantages to foreclosure defense, and the decision to defend or default depends on the individual debtor's situation and his assets. I found blog post  by the Florida law firm of Parker and DuFresne in Jacksonville which post  discusses legal defenses to a foreclosure action even when the homeowner is behind in payments. I am providing an  excerpt from the post below so that homeowners can learn how some attorneys defend foreclosure suits.

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One of the bankruptcy trustees in Tennessee has assembled a list of loss mitigation contacts at the national mortgage lenders. If you would like to discuss a modification of your mortgage with these lenders you might try contacting the people on the list. Download Mortgage-001 

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Several people who are contemplating voluntary foreclosure have asked me whether they should continue paying their homeowner or condominium dues during the foreclosure process. I have recommended that homeowners stop paying homeowner dues if they are voluntarily surrendering their homes to their mortgage lender. I believed that the homeowners due would be paid by the party who ultimately purchases the property from the mortgage lender in order to clear the HOA's lien on the property. I have changed my opinion after another attorney pointed out a Florida statute that may impose personal liability for homeowner's dues. Florida Statute 718.116(1)(a) states that homeowners are personally liable for assessments by a condominium association. Florida Statute 720.3085 states that homeowners are personally liable for assessments by a homeowners association.

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I frequently receive request from homeowners for assistance in negotiating a modification of their home mortgage to avoid foreclosure. I have usually advised people that they should themselves contact their mortgage lender to see if the lender can offer a modification of payment or interest amounts to avoid foreclosure. It is usually very expensive to pay their attorney hourly to conduct explore and negotiate with a mortgage lender to modify a mortgage loan. Loan modification and mortgage assistance is generally not a legal issue; the lender legally can refuse or grant changes in a private mortgage in the lender's discretion.

However, I have just recently become of aware of as free source of attorney help in dealing with mortgages. The Florida Bar has found a group of attorneys around the State who are offering to consult with financially distressed homeowners and to help the homeowners deal with their mortgage lenders prior to foreclosure.

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If you choose to stop paying your mortgage payments the lender will sue for foreclosure and sooner or later, one way or another, the delinquent homeowner will most likely lose the lawsuit and the lender will sell the house at foreclosure sale. I am often asked whether the homeowner should simply "let the house go" or "just turn in the keys", or whether they should retain an attorney to defend the foreclosure even though the chance of winning is small. I now think in most cases the homeowner should defend the foreclosure suit. I don't litigate foreclosure cases. I refer clients to other attorneys who practice in real estate or commercial litigation. More and more, people who hire attorneys to defend foreclosures obtain positive results. Here is one example reported to me by the litigation attorney this week.

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