Posts Tagged ‘foreclosure defense attorney Florida’

Strategic Default, Then Buy a House Down the Street

I received a fantastic question from a reader, and it’s worth blogging about. 


We purchased a house back in 06’ for 185k (still owe 170k)….houses are selling for 80k on my block now. If I buy a house on my block for 80k and move to it, can I “walk-away” from the one I bought in 06’?,, in doing so I will save more than 50% on my monthly house payment and will be able to pay the house off in 7 years.
I will really appreciate an advice on this situation.
Thanks in advance.

My Answer:

There is nothing stopping you from buying the house down the street, moving in, declaring it your homestead, and defaulting on your current mortgage.  Obviously, your current mortgage company would sue you at some point, but, frankly, the only reason you should care is the potential for a deficiency judgment (i.e. the possibility you’d owe the bank $90K more, even after getting foreclosed – 90K being the difference between what it’s worth and what you still owe). 

So how much does the potential deficiency judgment matter? 

First off, Florida has homestead protection, so, no matter what, you can buy another house, move in, declare it your homestead, and live securely, knowing that house is protected.  You’d just need to do so before the foreclosure on your current home is finalized.

The bigger concern is whether that deficiency judgment would impact your life in other ways.  Whether it’s worth the risk depends on your situation.  Generally, I think it is worth the risk, but, again, it depends.  For instance …

If you don’t have a lot in the way of income/assets, you may eliminate this deficiency through bankruptcy, if not now, then in the future.  If that’s your scenario, then this approach probably makes sense.

If you’re approaching retirement, don’t have a lot of income/assets, and are just looking for a house you can live in the rest of your life, then a deficiency judgment doesn’t mean much – it’s probably little more than a piece of paper.  In that case, this approach also makes sense. 

If you’re willing to take the gamble of trying to get the bank to waive the deficiency, or hope it never pursues it, then it makes sense.  Some people are more tolerant of risk than others.

It makes less sense for people who are younger and have a lot of other income/assets.  You’d hate to employ this approach, get foreclosed, get a deficiency judgment entered, and have the bank start taking your other assets. 

If you’re in that latter category, my suggestion would be this.  Buy the house and prepare yourself for that worst-case scenario (even if it means setting aside the monthly payments or the entire deficiency amount in a separate account).  If the worst-case scenario unfolds, and you wind up owing the deficiency, then, well, you knew it was possible and you prepared for it.  If it doesn’t happen, and you avoid a deficiency, then you will have drastically improved your financial situation, as that money you’ve set aside will be yours to keep and you’ll have eliminated a huge liability (the 90K deficiency).  In a way, if you can view it like that, there’s no downside – it’s only upside.

Mark Stopa

Posted in Main | 1 Comment »

Wells Fargo – Foreclosing on Dead People

This article is disturbing on a number of levels.  Wells Fargo foreclosed on a home, then sold it to a third party, and only then did the buyers find the original homeowner, in the garage, deceased – apparently for a long time.  Before you write that off as “just one of those things,” consider this quote from the neighbor of the deceased woman:

‘The main thing I think is sad about it is that somebody could have their house foreclosed on and sold out from under them and they’re still dead inside the house. I just think that’s pretty inhumane, and it certainly says we need to change this process somehow, reach out to people a little better than that. At least make sure they’re alive before you sell their house.’

I couldn’t have said it better myself.

Mark Stopa

Posted in Main | No Comments »

PNC reviewing its foreclosure procedures – so what?

At this point, we’ve all seen stories in the media about various banks halting or suspending its foreclosure procedures in the wake of news reports about foreclosure fraud, fraudulent affidavits, and robo-signers.  In my practice, these stories are just that – stories – and there is little if anything different on the “ground level” for foreclosure defense attorneys such as myself.  In other words, cases proceed forward, as normal, despite the purported “moratoriums” by banks such as BofA and GMAC.

Today, though, I received this Motion_for_Temporary_Stay in a case where PNC Bank is the Plaintiff.  It’s quite unique, as I can’t recall seeing a motion like it.  In the motion, PNC asks that the Court stay (i.e. halt or suspend) the foreclosure lawsuit through the end of November, 2010 “to allow time for the completion of a review of its mortgage servicing procedures,” a review that PNC notes was “commenced following nationwide reports of certain industry-wide deficiencies in the preparation of affidavits submitted in foreclosure proceedings.”  PNC goes on to say that it “intends to take all necessary steps to ensure that the documentation provided in connection with foreclosure proceedings, including this one, meets all applicable legal requirements.” 

So … what do I make of this motion?  Honestly, not much.   This motion has essentially no impact on this case (or any other).  Candidly, it seems silly to me that PNC would take the time to file a motion asking for a two-week stay.  Did PNC really think my client was going to try to aggressively litigate this case in the next two weeks?  Let’s put it this way – lots of lawsuits (in and out of the foreclosure arena) lie dormant for two weeks or more as a matter of routine.  Even aggressive plaintiffs’ attorneys often have two-week periods with little activity in a particular file.  Hence, in my view, PNC could have gone about this “review” process without filing anything at all (and nobody, including me, would have known any different or been affected in the slightest way).  The question thus becomes – why is PNC filing these motions?  Why is PNC paying its lawyers to file motions alerting attorneys like me (not to mention the public) that it is reviewing its foreclosure procedures?  Is it just me, or does something smell here?

You may think I’m being overly harsh.  After all, I suppose it’s a good thing that PNC is reviewing its procedures and is (apparently) trying to prosecute foreclosure cases the right way.  That said, this feels to me like a public relations stunt.  I mean … how much of a review can PNC really do in two weeks?  And even if it finds something wrong, is it really going to admit as much (particularly on files where the foreclosures have already been concluded)? 

It’s nice that PNC says it’s reviewing its foreclosure proceedings.  But let me know when a bank takes the time to do a comprehensive review, makes widespread changes to the process, and/or actually admits it did something wrong – that’s when I’ll take notice.  Unfortunately, a motion like this seems like nothing more than a public relations stunt.

Mark Stopa

Posted in Main | 5 Comments »

Living for Free – the Unintended Stimulus Package

One of the under-reported stories of Foreclosure-Gate is the ability of homeowners facing foreclosure to retain a foreclosure defense attorney, live in their homes without paying their mortgage, and either save their money or spend their money on something besides their mortgage.  In some states, such as Florida, the period of time where such homeowners can live for free could be many months or even years.  I’ve seen this phenomenon in place for quite some time, hence the name of this website –

Reasonable people can argue about the morality of living in one’s home without paying.  That said, with each new story of foreclosure fraud by banks, there is less and less of a stigma for homeowners employing such an approach.  To illustrate, here is today’s article in the Wall Street Journal: 

The mortgage-foreclosure mess could prove expensive for banks and investors. But in some states, it will also prolong an unintended economic stimulus: free housing for millions of defaulters.

Across the U.S., banks are running into problems foreclosing on homes because of flaws in their paperwork. Their main transgression involves the use of so-called robo-signers, bank employees who signed foreclosure affidavits without properly checking the required loan documentation. Major loan servicers—including Bank of America Corp., J.P. Morgan Chase & Co. and Ally Financial Inc.’s GMAC Mortgage—have at least temporarily stopped some foreclosure sales as state attorneys general probe their practices and loan servicers check to make sure their papers are in order.

The problems will be expensive for banks, and for investors in mortgage bonds, in terms of added processing costs and lost interest income. But for the millions of U.S. homeowners who have stopped making mortgage payments or who are already in the foreclosure process, the upshot is that they’ll get to stay in their homes a bit longer. Given that they’re not paying rent, that time has value.

Defaulters living in their homes are getting a subsidy worth about $2.6 billion a month, according to a Wall Street Journal analysis based on mortgage data from LPS Applied Analytics and rent data from the Commerce Department. That’s 0.25% of U.S. personal income, roughly equivalent to the benefit top earners receive from Bush-era tax breaks.

The longer defaulters stay in their homes, the longer the stimulus lasts. The average borrower whose home is in the foreclosure process hasn’t made a payment in nearly 16 months, according to LPS.

In most places, the foreclosure delays are unlikely to amount to more than a couple more months of free rent, says Ivy Zelman, chief executive of housing-market consultancy Zelman & Associates. But she says it could be six or more months in states such as Florida and New York, where the legal bottlenecks are most severe.

“In places where people get an extra month or two, it probably doesn’t have much effect,” Ms. Zelman says. “But in states where it lasts longer, it’s probably stimulative.”

It’s hard to know how much of that money will find its way into the economy through consumer spending. Some defaulters sock away their mortgage payments, in hopes that they’ll strike a modification agreement with their bank and get current again. Others have lost their jobs and hence most of their income, though the free housing might allow them to make purchases they otherwise would have to forgo.

Yolande Walker, who lived for two and a half years in her three-bedroom home in the Las Vegas suburb of Henderson, Nev., after defaulting on her $1,700-a-month mortgage payments in 2008, said the free housing helped her make ends meet after she lost her job as a commercial-loan processor. “I was able to make my car payment and keep from losing my car, and I was able to pay the utilities,” said the 50-year-old Ms. Walker, who finally lost the home to foreclosure last month. She is still looking for work, and says her unemployment benefits are scheduled to run out in December.

Some homeowners who have defaulted on their mortgage payments are cashing in by renting out their homes. Joe Mayol, a real-estate agent in Palmdale, Calif., estimates that in his area about two-thirds of houses with defaulted mortgages are occupied, and half of those by renters. “People are getting money out of these houses,” he said.

Ms. Zelman says her research suggests defaulters do spend much of the money on consumer services and goods. “People are taking what they would have been spending on a mortgage and spending it somewhere else,” she says.

To be sure, while the free rent might help some people through periods of unemployment, it’s not particularly encouraging to people who keep paying their mortgages, and it’s not going to drive a recovery. It’s also painful for local governments and school districts, which typically can’t collect property taxes from defaulters. The foreclosure troubles can also add to uncertainty in the housing market and delay its return to healthy growth.

“I don’t think that’s the kind of consumer recovery we want, if the only reason they’re spending a bit more is that they’re not paying their other bills,” said Joseph Carson, director of global economic research at AllianceBernstein in New York.

Another question is what might happen in the housing market if banks caught up in robo-signing controversy can’t put as many foreclosed homes up for sale. By taking some supply off the market, it could help support prices at a time when demand has been exceedingly weak.

Given the number of foreclosed homes that have already piled up in their inventory, though, banks already have more ready-for-sale houses than the market can bear. As of September, banks owned nearly a million homes, up 21% from a year earlier. That alone would take 17 months to unload at the most recent pace of sales, and doesn’t include the 5.2 million homes still in the foreclosure process or those whose owners have already missed at least two payments.

Meanwhile, banks and investors suffer. It’s hard to estimate how much it will cost to fix the paperwork problems. But the interest they could earn on the money from selling all the homes they own, together with the ones attached to delinquent mortgages, amounts to more than $10 billion a month.

Still, at least some of the banks’ loss is the borrowers’ gain.

Posted in Main | No Comments »

A Synopsis of Foreclosure-Gate; Blame the Banks!

I’m glad to see an increasing number of reporters placing the blame for the foreclosure crisis where it belongs – in the laps of the big banks.  Here’s an article from the New York Times that sums up public perception:   

How the Banks Put the Economy Underwater

Published: October 30, 2010

IN Congressional hearings last week, Obama administration officials acknowledged that uncertainty over foreclosures could delay the recovery of the housing market. The implications for the economy are serious. For instance, the International Monetary Fund found that the persistently high unemployment in the United States is largely the result of foreclosures and underwater mortgages, rather than widely cited causes like mismatches between job requirements and worker skills.

This chapter of the financial crisis is a self-inflicted wound. The major banks and their agents have for years taken shortcuts with their mortgage securitization documents — and not due to a momentary lack of attention, but as part of a systematic approach to save money and increase profits. The result can be seen in the stream of reports of colossal foreclosure mistakes: multiple banks foreclosing on the same borrower; banks trying to seize the homes of people who never had a mortgage or who had already entered into a refinancing program.

Banks are claiming that these are just accidents. But suppose that while absent-mindedly paying a bill, you wrote a check from a bank account that you had already closed. No one would have much sympathy with excuses that you were in a hurry and didn’t mean to do it, and it really was just a technicality.

The most visible symptoms of cutting corners have come up in the foreclosure process, but the roots lie much deeper. As has been widely documented in recent weeks, to speed up foreclosures, some banks hired low-level workers, including hair stylists and teenagers, to sign or simply stamp documents like affidavits — a job known as being a “robo-signer.”

Such documents were improper, since the person signing an affidavit is attesting that he has personal knowledge of the matters at issue, which was clearly impossible for people simply stamping hundreds of documents a day. As a result, several major financial firms froze foreclosures in many states, and attorneys general in all 50 states started an investigation.

However, the problems in the mortgage securitization market run much wider and deeper than robo-signing, and started much earlier than the foreclosure process.

When mortgage securitization took off in the 1980s, the contracts to govern these transactions were written carefully to satisfy not just well-settled, state-based real estate law, but other state and federal considerations. These included each state’s Uniform Commercial Code, which governed “secured” transactions that involve property with loans against them, and state trust law, since the packaged loans are put into a trust to protect investors. On the federal side, these deals needed to satisfy securities agencies and the Internal Revenue Service.

This process worked well enough until roughly 2004, when the volume of transactions exploded. Fee-hungry bankers broke the origination end of the machine. One problem is well known: many lenders ceased to be concerned about the quality of the loans they were creating, since if they turned bad, someone else (the investors in the securities) would suffer.

A second, potentially more significant, failure lay in how the rush to speed up the securitization process trampled traditional property rights protections for mortgages.

The procedures stipulated for these securitizations are labor-intensive. Each loan has to be signed over several times, first by the originator, then by typically at least two other parties, before it gets to the trust, “endorsed” the same way you might endorse a check to another party. In general, this process has to be completed within 90 days after a trust is closed.

Evidence is mounting that these requirements were widely ignored. Judges are noticing: more are finding that banks cannot prove that they have the standing to foreclose on the properties that were bundled into securities. If this were a mere procedural problem, the banks could foreclose once they marshaled their evidence. But banks who are challenged in many cases do not resume these foreclosures, indicating that their lapses go well beyond minor paperwork.

Increasingly, homeowners being foreclosed on are correctly demanding that servicers prove that the trust that is trying to foreclose actually has the right to do so. Problems with the mishandling of the loans have been compounded by the Mortgage Electronic Registration System, an electronic lien-registry service that was set up by the banks. While a standardized, centralized database was a good idea in theory, MERS has been widely accused of sloppy practices and is increasingly facing legal challenges.

As a result, investors are becoming concerned that the value of their securities will suffer if it becomes difficult and costly to foreclose; this uncertainty in turn puts a cloud over the value of mortgage-backed securities, which are the biggest asset class in the world.

Other serious abuses are coming to light. Consider a company called Lender Processing Services, which acts as a middleman for mortgage servicers and says it oversees more than half the foreclosures in the United States. To assist foreclosure law firms in its network, a subsidiary of the company offered a menu of services it provided for a fee.

The list showed prices for “creating” — that is, conjuring from thin air — various documents that the trust owning the loan should already have on hand. The firm even offered to create a “collateral file,” which contained all the documents needed to establish ownership of a particular real estate loan. Equipped with a collateral file, you could likely persuade a court that you were entitled to foreclose on a house even if you had never owned the loan.

That there was even a market for such fabricated documents among the law firms involved in foreclosures shows just how hard it is going to be to fix the problems caused by the lapses of the mortgage boom. No one would resort to such dubious behavior if there were an easier remedy.

The banks and other players in the securitization industry now seem to be looking to Congress to snap its fingers to make the whole problem go away, preferably with a law that relieves them of liability for their bad behavior. But any such legislative fiat would bulldoze regions of state laws on real estate and trusts, not to mention the Uniform Commercial Code. A challenge on constitutional grounds would be inevitable.

Asking for Congress’s help would also require the banks to tacitly admit that they routinely broke their own contracts and made misrepresentations to investors in their Securities and Exchange Commission filings. Would Congress dare shield them from well-deserved litigation when the banks themselves use every minor customer deviation from incomprehensible contracts as an excuse to charge a fee?

There are alternatives. One measure that both homeowners and investors in mortgage-backed securities would probably support is a process for major principal modifications for viable borrowers; that is, to forgive a portion of their debt and lower their monthly payments. This could come about through either coordinated state action or a state-federal effort.

The large banks, no doubt, would resist; they would be forced to write down the mortgage exposures they carry on their books, which some banking experts contend would force them back into the Troubled Asset Relief Program. However, allowing significant principal modifications would stem the flood of foreclosures and reduce uncertainty about the housing market and mortgage securities, giving the authorities time to devise approaches to the messy problems of clouded titles and faulty loan conveyance.

The people who so carefully designed the mortgage securitization process unwittingly devised a costly trap for people who ran roughshod over their handiwork. The trap has closed — and unless the mortgage finance industry agrees to a sensible way out of it, the entire economy will be the victim.

Posted in Main | No Comments »

Foreclosure Mills Pad the Bills

Have you ever wondered why banks sue “unknown tenant 1, unknown tenant 2, unknown spouse of John Doe, and unknown spouse of Jane Doe,” in addition to the homeowners?  Sometimes, these individuals are necessary in a foreclosure case.  For instance, if the property in foreclosure is a rental property, then the tenants must be sued and served with process.  

Often, though, as the Tampa Tribune explains, banks and their lawyers know there is no need to sue these parties, but they do so anyway – just to pad the bill.  And who receives that bill?  The homeowner, of course.  Incurring expenses that don’t need to be incurred just to pass on an expense to homeowners – ya gotta love the foreclosure mills.

Posted in Main | 3 Comments »

The right way for judges to clear foreclosure cases

With so many judges pushing foreclosure cases towards judgment at alarming rates, it’s refreshing to see judges in Manatee and Sarasota clearing their dockets in a way that the law allows, via dismissals for lack of prosecution.  According to the Bradenton Herald, Judge Paul E. Logan dismissed 357 cases that remained idle for more than a year, as permitted by Rule 1.420(e).  Granted, dismissing 357 cases is like scooping a bucket of water out of the ocean, but it’s a start. 

Judges, the next time you want to clear your dockets, I respectfully suggest that you dismiss cases for lack of prosecution.  And if you feel like the rule is too rigid, i.e. a lot of cases aren’t being prosecuted but can’t be dismissed under the language of the rule, get on the phone with the Florida Supreme Court and suggest a rule amendment.  Rule 1.420(e) has been changed a handful of times over the years, and another amendment seems appropriate. 

Yesterday I suggested an amendment to Fla.R.Civ.P. 1.420(e), making it easier to dismiss foreclosure cases for lack of prosecution.

Posted in Main | 1 Comment »