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

Blog readers know that I am not a big fan of short sales. One reason is that my experiences with my legal clients is that lenders usually will not release owners from personal liability in most (I did not say “all”) short sales. The owner/debtor will work hard to find a short sale buyer and still live with the treat that the lender may come after him personally for a deficiency claim.

I met a real estate broker who assures me that he has great success negotiating liability releases in the course of short sales. This guy is not a lawyer; he is a real estate broker, but he owns and operates a relatively large real estate sales force. This gentlemen states that he is able to negotiate full releases of liability in approximately 75% of short sale transactions.

I am not going to disclose his full name because of confidentiality concerns. His first name is Jason. His office is in Orlando.  His phone number is 407-467-5631 begin_of_the_skype_highlighting            407-467-5631      end_of_the_skype_highlighting. He has authorized me to provide his contact information.  I receive no “referral” fees if you hire him, but I am always interested in providing names of people who might provide a non-legal solution to upside down homeowners.
 

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Over the past year I have commented more than once that although the large national banks had generally not pursued deficiency claims on first mortgage foreclosures that smaller regional banks were becoming more aggressive. This week I spoke with a new client who had been sued for a deficiency judgment after foreclosure of first mortgage loan issued by First Priority Bank of Bradenton, Florida. Actually, after the mortgage loan went into default the FDIC closed First Priority Bank and sold the bank assets to an investor group. It is the investor group which is aggressive pursuing collection of the mortgage debt.

I am not sure why the smaller banks are so much more intent on chasing homeowners for deficiency judgments. Maybe the smaller local banks did not participate in the mortgage securitization program and held more loans in-house rather than selling them to Wall Street. Or, perhaps each loan in default represents a significant percentage of their bank assets. Whatever th reason, my observation is that the smaller the mortgage lender the greater is the borrower’s exposure to personal liability from a strategic mortgage default

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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.

Next, I asked Mr. Farquhar what determines whether or not a mortgage lender will release homeowners from personal liability to settle a contested foreclosure. He said it depends mostly on the policy of the bank and the investor. He says that some of his larger bank clients never releases homeowners to settle foreclosures (with few exceptions) while smaller banks are more flexible. That does not mean the non-releasing lender will sue for a deficiency judgment; they just do not want to give up their right to do so. The skill of the homeowner attorney defending the foreclosure has some impact on liability releases but the foreclosure defense is not as important as the overall policy of the mortgage lender in determining whether a homeowner will still have personal liability after a foreclosure.

I expect additional conversations with friend Norman and will pass on useful insights into lender foreclosures as they are offered.

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I did an interview with a reported from the Palm Beach Post about personal liability for deficiency judgments. The interview was part of an article published on Saturday, June 12, 2010, about debt collection firms which buy claims against homeowner’s who defaulted on home mortgages.

The article features a New York based company called Deficiency Judgment Recovery Network ("DJRN"). DJRN that is buying pools of deficiency claims from mortgage lenders for pennies on the dollar. The article states that this collection company is going after people who could afford their mortgage but who stopped payments because their property was upside down in value: the so-called strategic defaults.

I have not heard from any of my clients that they had been pursued by a third-party collection firm to pay a claim related to their strategic mortgage default. I have not heard from any other attorney that DJRN has sued or threatened to sue their clients. The article says that entrepreneurs will start buying up mortgage delinquencies and that "it’s going to be a blood bath." That’s possible, but it’s also possible that these collection speculators may find that their rate of collection does not justify going to court to prove the amount of a deficiency claim.

Anybody with access to a computer keyboard or to a newspaper reporter can publish their opinions about deficiency collection, but no one knows for certain what other people will do in the future. The fact that I have not seen large amounts of deficiency collection by third-party investors leads me to believe that investment in deficiency claims may not be profitable.

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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.

One change that would deter "strategic defaults" is the mortgage lenders getting much tougher pursuing deficiency judgments. People believe that if they default on a credit card or car payment the creditor is likely to sue them for the money; people are not as afraid of mortgage lenders. I know, from speaking with people in the banking industry, that mortgage banks have good reasons for not aggressively pursuing collections of homeowners’ personal liability on mortgages.

When mortgage lenders have had enough strategic defaults; when they want people to exhaust all their money and assets before they walk away from their mortgages, I think one of the first things the lenders should do is get tough and get mean. People act rationally when they voluntarily withhold payments to lenders whom they do not fear.

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