With Florida facing unprecedented numbers of foreclosures (and no end in sight), an incredible number of lawyers, and even some non-lawyers, have thrown their hats into the “foreclosure defense” arena in Florida. Whether it’s Tampa, Miami, Jacksonville, Orlando, or somewhere in between, experienced attorneys such as those at Stopa Law Firm are available to assist homeowners through the foreclosure process. The problem, though, is this –
with all of the choices available, how can the average homeowner tell the difference between an experienced attorney, who is likely to help, and a “johnny come lately” who is not?
In recent weeks, I’ve seen my fair share of pleadings and court filings from other foreclosure defense attorneys (usually because a client started out with a different lawyer and changed to Stopa Law Firm). Without naming names, I must say – some of the pleadings and court filings I’ve read are absolutely awful. Don’t get me wrong -there are a fair number of reputable attorneys who can capably defend foreclosure cases. In my view, though, many are inept. How can you tell the difference?
Here are some “red flags” I’d keep in mind:
1. Up-front money to a non-lawyer. It’s against the law for a non-lawyer to charge an up-front fee for a loan modification or foreclosure defense work. A non-lawyer can’t defend a foreclosure case anyway (that’s called the unlicensed practice of law – it’s a criminal offense, actually), so if you’re seeking help with foreclosure, I’d be exceptionally careful about retaining any non-lawyer, especially with up-front money.
2. Realtors pushing a short sale. Look, I don’t want to badmouth realtors. But there’s an inescapable problem with putting your trust in a realtor (instead of a lawyer). Typically, all realtors care about is selling the house – after all, that’s the only way they get paid. Realtors may want you to believe a short sale will solve all your problems, but often, that’s not so. Usually, when the bank agrees to a short sale, the homeowner remains liable for the deficiency (the difference between what you owe on the house and the short sale price). Often, the amount of this deficiency can be tens or even hundreds of thousands of dollars. And if this deficiency is reduced to judgment, that judgment remains for twenty years, meaning the bank may pursue payment of these monies from you (e.g. garnishing wages) for up to twenty years.
Time and time again, I’ve seen realtors either fail to disclose these facts or actively mislead homeowners about their liability for a deficiency. Don’t make that mistake. No matter what your realtor may tell you, the standard short sale contract does not include a waiver of deficiency. Just because a short sale contract says it requires the bank’s approval, that does not mean the bank is waiving the deficiency. Accepting a short sale and waiving a deficiency are not the same thing.
If you’re thinking about a short sale on your home, ask yourself this – what am I gaining out of this? How does this help me? If the bank is putting, in writing, that it is waiving the deficiency, and accepting the short sale price as full payment of the Note and Mortgage, then a short sale may make sense, as you’d be eliminating a big liability (the deficiency). However, if the bank isn’t waiving the deficiency, how does it help you to do a short sale? I’d argue, in this scenario, that a short sale hurts most homeowners, for two reasons. First, instead of continuing to live in the home while the foreclosure case is pending, that homeowner must move out and find a new place to live. Isn’t it better to keep living in your house? Second, by agreeing to sell the home, and vacate possession, that homeowner has lost virtually all leverage with the bank. If that doesn’t make sense, pretend you’re the bank for a moment (scary thought, I know). Why would any bank agree to waive the deficiency if the house is already sold and you’ve moved out? What would the bank gain by doing that? Arguably, nothing, and that’s precisely the problem.
This is where, in my opinion, a lawyer is so much more valuable than a realtor. By defending your foreclosure case, while you live in your home, lawyers can try to point out technical problems with the lawsuit against you. Realtors can’t. Hopefully, the lawyer is good enough that the bank prefers to work out a settlement with you (i.e. a short sale as full payment, with a full waiver of the deficiency, or a loan modification) instead of continuing with the foreclosure case. In that scenario (unlike the prior example, where you’ve already sold the home, moved out and lost all leverage), the bank would have a reason to waive the deficiency – you’d be moving out and agreeing to sell the house as part of the settlement. Again, I’m not trying to badmouth realtors, but this is something I’d consider before I put all my trust in a realtor.
3. Any type of guarantee. Lots of prospective clients want guarantees. “Can you guarantee me a loan modification?” “Can you guarantee me that I can live in my home for X months?” No matter what, I never provide guarantees. In fact, my standard fee agreement clearly indicates there are no guarantees. Make no mistake – this is not because I question my abilities. Guarantees have no place in foreclosure defense because (i) The Rules Regulating The Florida Bar prohibit a lawyer from giving a client any sort of guarantee on the outcome of a lawsuit; and (ii) there is never a way to know, for sure, how a case is going to play out, especially a foreclosure case. Even if I think the law is on my client’s side, the judge may disagree. Even if I think a loan modification should happen, the bank may disagree. There are, quite simply no guarantees in foreclosure defense.
With this backdrop, it’s troubling that I’ve seen and heard of instances where clients facing foreclosure have been given a guarantee. If you’re been given a guarantee, I’d question not just the validity of the guarantee, but the reputation of the person providing it to you. If that sounds harsh, check out R.Reg.Fla.Bar. 4-7.2(c)(1)(g).
4. Pushing bankruptcy at the initial consultation. There’s no easy way to say this, so I’ll just say it. A fair number of bankruptcy firms have expanded their practice into foreclosure defense, but these firms don’t necessarily know how to properly defend a foreclosure case. Bear in mind, bankruptcy law and foreclosure defense may seem similar, but they’re drastically different – different courts (federal vs. state) with entirely different sets of rules (Federal Rules of Civil Procedure vs. Florida Rules of Civil Procedure). Many bankruptcy firms sell themselves as “full service” firms, but they’re really just bankruptcy firms that do a “bare bones” foreclosure defense, which (once they lose the foreclosure case) dovetails into a bankruptcy. This sounds harsh, and I typically don’t like to talk about other lawyers in this tone, but I’ve seen too many instances where bankruptcy firms did not interpose legitimate defenses for a foreclosure client, then pushed that client into bankruptcy.
Make no mistake – bankruptcy is a perfectly useful tool for many clients. However, if a lawyer is trying to sell you on a bankruptcy in your initial consultation, and your foreclosure lawsuit was just filed, I’d be skeptical of his/her ability to competently represent you in that foreclosure case (particularly if you don’t have other debts). Quite simply, for most clients I’ve seen, bankruptcy is a last resort. Many homeowners don’t realize – it’s entirely possible that a foreclosure case can be resolved without resorting to bankruptcy. For instance, one benefit of bankruptcy – eliminating the deficiency – could be accomplished (remember, no guarantees) without a bankruptcy, merely by defending the foreclosure case and entering a settlement with the bank. And even if a settlement doesn’t transpire, there is typically nothing stopping you from filing a bankruptcy as your foreclosure lawsuit nears a conclusion. In essence, I suggest ensuring you get the best of both worlds – a competent foreclosure defense attorney and, if and when necessary, a competent bankruptcy attorney.
Nothing in this post was directed at anyone in particular, and, as always, these are just my opinions. That said, I thought my views on these issues may help homeowners sift through the sea of foreclosure attorneys in Florida so as to make an informed decision.