Strategic Defaults are Under Assault by Bank of America, and others, and May Lead to a Rise in Deficiency Judgments

bank owned.jpgMany financial institutions, including Bank of America, are planning on getting tougher with those who do not try in good faith to work out a deal with the bank but who have the capacity to pay.

Proposals that are currently floating around, and being pushed by Fannie Mae, and others, include trying to encourage distressed homeowners to find alternatives to foreclosure by banning those who walk away from their home from getting new loans to purchase a home for seven years. Put differently, if it is determined that you stopped making mortgage payments despite having the capacity to do so, you may be banned from getting a new loan for up to seven years.

A strategic default is a decision by a borrower to stop making payments on a debt despite having the financial ability to make the payment. A Wall Street Journal report recently estimated that 1 in 5 mortgage defaults are “strategic”. Indeed, many are anticipating that the next wave of foreclosures will consist of more and more individuals seeking to walk away from homes that are currently underwater.

Another weapon that many financial institutions have in their arsenal to combat strategic defaults is the pursuit of a deficiency judgment. A deficiency judgment occurs when the financial institution has not only taken the home back, but has also sold the home. However, the proceeds of the foreclosure sale were not enough to cover the full amount of the original mortgage. That difference between the foreclosure sale, and the original mortgage, is often referred to as the deficiency.

If a bank, such as Bank of America, suspects that the borrower simply walked away from the mortgage despite having the financial capacity to pay, the bank will likely have an increased incentive to pursue the borrower and seek recovery of the deficiency by way of a deficiency judgment. It should be emphasized that if a deficiency judgment is properly recorded, it could remain in effect for up to 20 years in the state of Florida. That means that the bank could have up to 20 years to recoup each and every penny, plus interest, of the deficiency judgment.

It becomes important to consult with an experienced foreclosure defense attorney to understand your rights. We have been successful in defending many foreclosure cases when given an opportunity to develop a plan to properly defend the foreclosure.
If you are on the brink of foreclosure, and need to assess your legal rights, please contact our office today.

Saving Your Home: Alternatives to Avoid Foreclosure

foreclosure help.jpgHugo V. Alvarez will be a speaking at a Foreclosure Clinic sponsored by the Florida Bar’s Consumer Protection Law Committee, in conjunction with the Legal Aid of Palm Beach County. The clinic is scheduled to take place on June 24th from 6pm to 8pm at the Boca Raton Community Center.

Mr. Alvarez will be speaking on alternatives to foreclosure, and specifically discussing (a) options to retain one’s home, while avoiding foreclosure, and (b) options to dispose of one’s home, and avoid foreclosure.

Options to Retain Your Home

1. Payment or Repayment Plan – the quickest method of avoiding foreclosure is to come up with the necessary money to bring the delinquent loan current. In some instances, banks are willing to provide the delinquent borrower with a repayment plan in an effort to bring the mortgage current. This will typically involve an agreed upon time frame in which to make the regular payments, plus a little extra, to repay in the delinquent amount in full over time.

2. Refinance – in the event that you actually have equity in your home today, you may be in a position to refinance your mortgage. Refinancing your mortgage may actually provide you with a lower interest rate, and a lower monthly payment. If you do not qualify for a government-sponsored loan modification, you may also be eligible for a government-sponsored re-financing plan (HARP – Home Affordable Refinance Program).

3. Forbearance – some banks may offer you a forbearance plan. This option typically provides for a temporary reduction or a suspension of monthly payments for a specified length of time, and with an agreement that the amount that was forgiven will be paid back at a later date.

4. Loan Modification – a loan modification is a permanent change in one or more of the terms of the mortgage. It also allows the mortgage to be reinstated, and results in a payment that the borrower can afford. This can include anything from a reduction in interest, adding years to the mortgage (from say a 30 year mortgage to a 40 year mortgage), reduction in the principal amount owed, or any combination of the aforementioned. It should be noted that many financial institutions are provided with financial incentives from the government to modify loans. Additionally, the current loan modification program is not designed to save every home, but only geared toward saving the homes of individuals that can still afford to be in that home.

Options to Dispose of Your Home

1. Sell the Home – if there is sufficient equity in your home, you may be able to sell your home in today’s market for more than the amount you currently owe on your mortgage. If you can do this, you will actually reap a profit.

2. Short Sale – if your home is “underwater”, i.e. you owe more than the home is worth, then you will have to pursue a short sale if you are interested in selling the home. A short sale is when a bank allows you to sell the home for a contract price that is less than the amount owed on the mortgage. In many instances, however, banks may reserve the right to pursue the difference between the short sale contract price, and the amount owed on the mortgage, from the borrower directly. This is commonly known as a “deficiency”, or “deficiency judgment”. So when trying to sell a home via short sale, it is important to understand whether the bank will continue to pursue the borrower, for monies owed, even after the transaction is completed, especially if the home was “underwater” at the time of the short sale. Don’t assume that just because the bank approved the short sale that they won’t pursue you for the difference after the deal is done.

3. Deed in Lieu of Foreclosure – this is accomplished when the property owner voluntarily gives the property back to the bank in exchange for the bank canceling the mortgage. In other words, the deed is transferred from the borrower to the bank in an effort to shorten the length and costly process of foreclosing on the property. As with a short sale, the bank may reserve the right to pursue any deficiency against the borrower directly even after the deal is done.

4. Tax Issues – all tax issues should be consulted in great detail with a certified public accountant. However, if you lose your home to foreclosure or short sale, where you sell your home for less than you owe, the IRS won’t add insult to injury by counting the difference as income. At least until 2012.

However, there are four major exceptions to the rule:

A. You did a cash-out refinance and splurged.
B. You have a home-equity line of credit.
C. You lost your vacation home or investment property.
D. You owned a multi-million-dollar home.

But again, these are issues to be covered in greater detail with an accountant.

If you are on the brink of foreclosure, and need to assess your legal rights, please contact our office today.

Real Estate Market Losing Steam as Hurricane Season Approaches

blowing palms.jpgReal Estate experts are anticipating that home sales will slow for the second half of the year. This is due in large part to the expiration of the $8,000 tax credit, for first time home buyers, that expired on April 30. However, those that signed purchase contracts prior to April 30th can still take advantage of that tax credit if they complete their transaction by June 30th.

Additionally, other factors will likely continue to contribute to the ongoing sluggish recovery in the housing market. For instance, the economic recovery that is currently taking place is largely a jobless one. In fact, since 2007, when the recession began, South Florida’s workforce has only recovered to about 90% of where it was before the recession began. Since South Florida’s economy was so dependent on the housing market, it will likely take some time for South Florida’s economy to recover given the ongoing real estate crisis that is impacting all of us on a daily basis here in South Florida.

Additionally, another potential problem for our local economy, an economy that is still very dependent on real estate development, is that many lenders are increasingly reluctant to make new construction loans to developers. Now that certain tax credits have expired, coupled with the increasingly sluggish real estate market, builders see stormy days ahead. Indeed, increasingly high unemployment rates, coupled with stringent mortgage lending guidelines, are keeping many prospective purchasers on the sidelines.

All of these factors contribute to the general consensus that our real estate market will continue to struggle to stand on its own without the assistance of government backed programs, like the tax credit for first time home buyers, or a sharp turnaround in the economy as a whole.

In South Florida, with the storm season under way, a natural catastrophe could tip the ongoing real estate crisis into further disarray. If high unemployment rates, and rapidly declining real estate values were not enough, then a strong hurricane directly hitting South Florida and causing extensive damage will only serve to worsen the ongoing real estate crisis here in South Florida.

If you are on the brink of foreclosure, and need to assess your legal rights, especially in light of the recent BP oil spill, please contact our office today.

Will the BP Oil Spill Cause Florida to Surpass Nevada and Arizona in Foreclosure Filings?

underwater home.jpgFlorida remains number three (3) in the country for number of foreclosure filings, according to national statistics reflecting foreclosure filing in May. Nevada and Arizona were the only states that had more foreclosure filings than Florida in the month of May.

In May, one in every 174 Florida properties were in danger of falling into a foreclosure. The May foreclosure rate was actually higher than the foreclosure rate in the month of April. In April, one in every 182 Florida properties were in danger of falling into foreclosure.

However, it should be noted that in South Florida saw fewer foreclosure this past May as compared with May of last year. But the worst is far from over regarding the foreclosure crises, especially for those with adjustable rate mortgages. Now, and as will be discussed below, the recent disaster in the Gulf of Mexico, and massive oil spill, may impact future foreclosure filings as well.

On the other hand, while May saw less foreclosure filings this year as compared to last May, it still brought a spike in foreclosure filings as compared to April of this year. Put differently, there were more foreclosure filings in May than in April of this year. Overall, there were 7,700 foreclosure filings with one in every 127 properties receiving a foreclosure notice in South Florida.

The ongoing foreclosure crisis in South Florida may be further fueled by the oil from the Gulf of Mexico, especially if that oil makes its way onto South Florida’s beaches in a hurricane storm surge, or other natural catastrophe. If that were to happen, many homeowners would be faced with the difficult prospect of having to sell depressed property in a region that is beset by natural catastrophe.
If you are on the brink of foreclosure, and need to assess your legal rights, especially in light of the recent BP oil spill, please contact our office today.

South Florida Real Estates Sales Are Up As Foreclosures Steady

foreclosure 001.jpgAccording to the National Association of Realtors, sales of existing homes and condos in Miami-Dade, Broward and Palm Beach county rose 27% in April.

Additionally, and another positive trend, last month’s statewide existing home median price of $140,100 was 1% higher than the statewide median price in April of 2009. While the median price for single family homes also rose, the same can’t be said for condos. Statewide, condo prices fell 1%, to $79,300 from $79,000.

In the tri-county area, Miami saw the smallest increase in home sales in April. There were 594 sales, up 7% from 555 in April of 2009. The median price was up 8%, to $192,000 from $177,000.

There several factors behind these positive numbers. We previously anticipated this news, and discussed many of the many positive factors that are behind the recent news regarding the trends in the Miami, and South Florida, real estate market.

As for some of the reasons behind this trend, they include the following:

• The recent expiration of certain tax credits forced many to buy before the tax credit expired.
• We’re starting to see a stabilization of home prices.
• Home prices are starting to stabilize because inventory levels are starting to fall.
• Inventory levels are starting to fall because foreclosures are being absorbed in the market at manageable levels.

If you wish to discuss this article, or your real estate needs in general, please contact our office today to discuss further. Our phone number is 305-263-7700.

Increase in Miami Homes Being Repossessed Due to Foreclosures

underwater-home1.jpgAccording to a recent news report, home repossessions increased to record levels and more than one fifth of all U.S. mortgage holders were underwater on their mortgages in that they owed more on their mortgage than their home was worth.

More than 1 in 1000 homes were repossessed by lenders in March. Twenty three percent of owners of homes with mortgages owed more than their home was worth, and that was up from 21 percent in the prior three month period.

Moreover, U.S. home values continue to drop. The values dropped 3.8 percent in the first quarter, and that is the 13th straight period of year over year declines. These trends make it increasingly difficult for home owners with homes underwater to move the homes. Thus, when they fall behind, their options are limited. This makes it more likely that those homeowners will lose their homes in a foreclosure.

The continued high number of homes, and homeowners, underwater will continue to place a downward pressure on home prices. Thus, it is likely that we will see home prices continue to fall a bit more during the course of the next 12 months.

Additionally, banks are repossessing homes at a greater rare. In the first quarter, bank repossessions rose by 35% in comparison to the same period of the prior year. Indeed, repossessed homes now account for 1/5 of all homes currently for sale.
Please contact our office today to discuss your real estate options during these turbulent times.

Banks Pushing Deficiency Judgements Against Many Borrowers in Miami

underwater.jpgIf pushing you to attain an unaffordable mortgage during the go-go heyday of the real estate housing market was not enough. Today, many banks, like Bank of America, are at it again by chasing depleted borrowers to pay for the deficiency to improve the bank’s bottom line, while further pushing the borrower to the brink of economic collapse.

The bank’s latest tactic seems to be pushing desperate homeowners to accept deficiency judgments voluntarily, or pursuing them in the court system. As reported by CNNMoney, because of the declining real estate market, and difficult times stemming from the Great Recession, many borrowers have run into tough times. Indeed, we recently detailed the many factors that typically give rise to a foreclosure.

As a result, many borrowers can no longer afford their homes. Worse yet, they can’t even sell their homes today for what the homes were worth at the time of purchase. Consequently, desperate borrowers are forced to either short sell their homes, or simply lose their homes outright in a foreclosure sale.

The new problem becomes what to do with the short fall, or deficiency, between what the home was sold for minus the amount of the original mortgage. With the precipitous drop in real estate values, it comes as no surprise that the amount of the deficiency is often tens of thousands to hundreds of thousands of dollars.

Rather than write that money off as a bad loan – a bad loan that often times was pushed onto the borrower by mortgage brokers and banks just looking to make a quick buck – many banks are aggressively pursuing the pennyless homeowner, the homeowner down on his luck, and who just sold his home at a loss, to cover the deficiency. This is often done by way of a deficiency judgment, but can also be accomplished by pushy debt collectors hired by the banks to further bolster their bottom line.

It should be emphasized that this situation could happen to individuals who secured bank approval to sell their home for less than what the home is worth by way of a short sale. Therefore, just because your short sale has been approved does not mean that the bank won’t still pursue you for the deficiency. Thus, it is important to contact our office to address your concerns regarding this issue.

Whether banks can and will pursue deficiency judgements often times depends on many factors. The factors include, but are not limited to, whether there’s a second mortgage or other liens on the property. But if the borrower ignores the problem, or ignores the prospect of a deficiency judgment being entered against them, such failure to act could haunt the borrower for many years. Indeed, a bank could have up to 20 years to collect on the deficiency judgment, plus interest.

Therefore, if you are confronted with this situation, it is important to contact our office today to discuss your options.

Prominent Miami Developer Takes on the Banks Stemming from Foreclosure Fallout

miami beach.jpgAs reported in the South Florida Business Journal, prominent Miami developer, Richard Meruelo, has filed suit against Ocean Bank seeking $9 million in damages after he and his family members were hit with foreclosure actions.

As our attorneys previously discussed, many banks have taken a very aggressive approach to this very prominent family and their many real estate projects. In the latest chapter of their ongoing legal saga, Mr. Meruelo filed suit against Ocean Bank alleging that Ocean Bank should not have loaned $12.4 million dollars to them to buy land in Golden Beach while then turning around and refusing to give him a construction loan. The Golden Beach property is now under foreclosure, with Mr. Meruelo listed as a guarantor.

This latest lawsuit alleges that Mr. Meruelo’s family had more than $130 million in loans on multiple projects with Ocean Bank dating all the way back to 1984. However, Mr. Meruelo, and his family, including his brother, Homero F. Meruelo, have been hit with numerous foreclosure lawsuits over the last two years. That includes an ongoing fight with a different bank that pulled the financing on renovations that were underway with the Grand Bay Hotel in Coconut Grove, and a fight to enforce a settlement agreement regarding that case.

“As the relationship grew, Ocean Bank exerted increasing influence over the investment activites of the Meruelo family,” the complaint alleges. “Over time, Ocean Bank exercised control over their investments because it could unilaterally restrict credit or refinance or extend terms of existing loans.”

It turns out that back in 2006, Mr. Meruelo informed Ocean Bank of his plan to purchase two lots in Golden Beach, divide them into three lots and build beachfront homes on them. Ocean Bank executives visited the site, and approved the purchase of the lots. As a result, Mr. Meruelo purchased the Golden Beach lots for $17 million, including a $12.35 million loan from Ocean Bank.

According to the Complaint, Ocean Bank had agreed to fund future construction costs estimated at $12 million, and this was agreed upon before the deal closed. However, the Complaint alleges that Ocean Bank violated internal policies, which requires that construction financing be in place before lending on vacant land. Moreover, it is also alleged that Mr. Meruelo never would have purchased the property if Ocean Bank had not agreed to make the construction loan.

In May 2008, Ocean Bank agreed to a modified cease and desist order with regulators that severely restricted its construction lending and ordered it to get tougher on problem loan. Like many banks that agreed to such orders, Ocean Bank was prevented from extending or renewing credit to borrowers with troubled loan.

This case is further illustration of the problems many individuals are in today because their bank failed to live up to its obligations. If you are in a similar situation, or if you feel short changed by your bank, please contact our office to discuss your options.

Florida Homeowners on the Brink of Foreclosure Should Educate Themselves on their Defense Attorneys

underwater home.jpgAn interesting article recently ran in the Miami Daily Business Review regarding the dangers of knowing enough about your attorney before the attorney is hired.

Daniel and Alisa Cianciotto are a South Florida couple, who like many others in Miami, fell behind on their house payment and eventually defaulted on their loan with Aurora Loan Services. Aurora then filed a foreclosure which prompted the Cianciottos to retain a foreclosure defense attorney, John Watson. In February, the Cianciotto’s became aware that Watson also represents a Littleton, Colorado based Aurora in foreclosure suits against homeowners like them.

“I was completely devastated,” Daniel Cianciotto said. ” I felt like I was tricked and scammed. I never would have signed up with him if I knew he had anything to do with representing Aurora. These people are trying to throw me out of my house.” Watson claims that Aurora was not his client, but his brother’s law firm’s, who he shared office space with.

This case has enticed a debate as to whether a conflict of interest exists when a lawyer hired to fight foreclosure is also represented by the homeowners’ lender. Warren Trazenfeld, a Miami lawyer who specializes in attorney malpractice law, says that for the same law firm and its of-counsel lawyers to represent borrowers defending against foreclosures when the same law firm represents lenders foreclosing on the borrowers is “an absolute conflict”.

In fact, a Florida Bar article states that “before forming an ‘of counsel’ relationship, a firm should consider the fact that the ‘of counsel’ lawyer is treated as a firm member for conflict of interest analysis.”

Watson withdrew from the Cianciottos case and returned their $1,000 retainer after they filed a motion for disqualification. Still, the Cianciottos insist that Watson should be investigated, despite having a clean disciplinary record and no complaints related to conflicts of interest.

This case clearly illustrates how challenging the foreclosure legal process can be for homeowners with limited knowledge of the system. Please contact our office today to discuss your rights in a foreclosure, and other pending real estate needs.

New Mortgage Aid Program May Lead to Fraud in South Florida

foreclosure.jpgAs reported by the Associated Press, the Obama administration is implementing significant changes to the $75 billion Mortgage Aid Program that will potentially provide some much needed homeowner relief here in South Florida. These same changes, however, may also cause vulnerable homeowners to become innocent victims of fraudulent and criminal schemes. Therefore, it becomes important to retain the services of a reputable professional.

In response to the current real estate collapse here in South Florida, and other parts of the nation, the administration has added an incentive program for mortgage lenders which will encourage them to reduce the amount borrowers owe, providing “underwater” homeowners with some relief. The administration aims to prevent three to four million foreclosures by encouraging mortgage lenders to lower the monthly payments for many here in South Florida. In addition, through this new program, unemployed homeowners may have their mortgage payments cut by thirty-one percent of their income for three to six months.

Clearly, through these changes, the administration is attempting to aid struggling homeowners on the brink of foreclosure, especially those here in South Florida. But some critics are skeptical that the administration has not done enough to prevent fraud.

“Criminals feed on borrower confusion, and frequent changes to the programs provide opportunities for experienced criminal elements to prey on desperate homeowners,” inspector general Neil Barofsky wrote in a quarterly report issued April 20, 2010. Critics such as Barofsky believe that the administration has not done enough to warn borrowers about potential schemers tricking borrowers to pay upfront for modifications that never materialize. The critics also point out weaknesses to the mortgage incentive program due to the lack of an appraisal requirement to determine a home’s value. This could potentially open the flood gates for mortgage lenders to fraudulently qualify for incentive payments. The Treasury Department officials have responded by insisting that they will initiate a public service campaign to warn borrowers against fraud.

It is therefore important to trust your real estate needs to a trusted professional. If you are in danger of losing your home, contact our office today to discuss your options.