Legal Consumer Tips and Secrets

Chapter Four: Fifteen (15) Tips for Avoiding Foreclosure “Produce the note!” Whenever clients and other homeowners, and even commercial building owners call me concerning possible foreclosure proceedings against them, I almost always advise them to request that the foreclosing party, or plaintiff, “produce the note” on the property. It is no less than remarkable how many times your promissory note on the property can be misfiled, made unavailable temporarily, or even lost between the transfer of your note from one creditor (mortgagor) to another. It is the mortgagee’s right to have the note produced by the mortgagor prior to final foreclosure. This factor frequently buys valuable time for the mortgagee (borrower). Without a doubt, losing one’s home or commercial business building through foreclosure, i.e., forced sale of the property in order to pay back the loan, is an unmitigated nightmare. Generally, the home is the subject of foreclosure, and it takes place when a homeowner cannot repay his or her loan according to the terms of the mortgage agreement with the lender (mortgagor). When this occurs, the mortgagor (lender) may start [foreclosure] legal proceedings to have the mortgagee’s (borrower’s) home or property sold (usually auctioned). Then the proceeds form the sale or auction of the property are used to help pay off the outstanding debt on the property. In these turbulent economic and financial times, foreclosures are unfortunately all too prevalent in our communities. This is the case despite the fact that most lenders historically try to avoid foreclosure because the process is costly, takes a long time, and does not guarantee full and complete recovery of the loan amount. Foreclosure laws vary from state to state, but foreclosure proceedings generally follow a consistent series of steps, which are summarized as follows: 1. The Promissory Note and/or Mortgage. Remember, supra, “produce the note!” When the consumer took out his or her home or commercial business loan, they usually had to sign a promissory note and a mortgage. Both documents usually contain clauses that set forth the consumer’s rights and responsibilities regarding repayment of the loan as well as the lender’s (mortgagor’s) rights and responsibilities. 2. First Missed Payment by the Consumer. Usually, when the consumer misses a payment, the lender is routinely required to send the consumer a letter of reminder, which is usually accompanied with an imposed lawful and agreed-upon late fee. 3. Letter of Notice of Default. If the consumer still fails to pay, the lender is required to send the consumer a formal “Notice of Default” before taking any further action against the consumer. This “Notice” should inform the consumer that he or she can “cure” the default within a specified period of time by making the payments as well as pay any additional fees that have accrued. The “Notice of Default” should specifically state the exact amount the consumer owes as well as the deadline in which it must be paid. It is important to note that the lender is obligated to send this notice to your last known address; but the consumer is required to diligently inform the lender of his or her current address. 4. Mitigation. If the consumer pays the full amount owed within the specified time limit, and then continues timely payments, the lender is prohibited from taking further action against the consumer. If the consumer cannot make the mortgage payments in a timely manner, he or she can still avoid foreclosure by selling the home themselves. 5. The Foreclosure Lawsuit. Foreclosure filings, frequently referred to as default notices, increased by almost 19% from 2008 to 2009 in the United States. In October 2009, 1 in 385 households in the United States had received a foreclosure notice. [CNBC.com/id/29655038] (i) If the consumer does not pay the amount owed by the date due, and cannot or does not sell the home themselves, the lender may initiate foreclosure proceedings by suing the consumer for the unpaid balance of the loan. Keep in mind, the consumer also has the option of renting his or her home. (ii) In doing so, (i) supra, the lender will be asking the court to foreclose on the mortgage; that is, to bar the consumer from redeeming the mortgage or paying it off—and asking the court to order that the property be sold, or auctioned. The proper court must be selected by the lender to file these proceedings. (iii) The consumer must be named as a defendant (or respondent) in the foreclosure lawsuit, along with third parties who may have an interest in the property (such as other creditors who may want the property sold to repay them, or government agencies that may have claims for unpaid taxes). (iv) These third parties (usually the IRS, et al.) must have legitimate and proper “liens” on the consumer’s property. (v) The foreclosure complaint or petition must be “served upon” (delivered to) the consumer by lawful and proper means as specified by the court’s procedure and law; which usually means by the sheriff or by certified mail, etc. (vi) It is very important that, upon receipt of the foreclosure complaint or petition, the consumer or defendant/respondent contact an attorney immediately; regardless as to whether the consumer believes or feels he or she was properly served or not. (vii) Time is of the essence. A qualified attorney may be able to have the foreclosure lawsuit stopped for a number of possible reasons. (viii) Given enough time and effort, the attorney may be able to come to some agreement with the lender/mortgagor on behalf of the consumer. (ix) Finally, a qualified attorney can advise the consumer whether he or she should seek bankruptcy protection, which ordinarily and at least temporarily stops foreclosure proceedings. This legal maneuver is particularly helpful when the consumer is having difficulty paying his or her other bills. (x) Additionally, it should be noted that if the consumer is in default by at least three (3) payments, and their mortgage is insured by the Federal Housing Administration (FHA), the consumer may be able to avoid foreclosure by means of the mortgage Assignment Program administered by the Department of Housing and Urban Development (HUD). (xi) Obtain more specific information about this program and/or mortgage modification programs from your mortgage company, appropriate government websites, and respected mortgage-involved and related organizations. (xii) If the lender (mortgagor) proves its case against the consumer (mortgage)—i.e., the lender has satisfied its obligations but the borrower (consumer) has defaulted on the mortgage—the court will grant a judgment for the mortgagor and against the mortgagee. This opens the door for the property to be sold. (xiii) Sheriff’s Sale or Judicial Sale. The court ordered sale of the property is known as a judicial sale or sheriff’s sale, and it is usually carried out by a so-called “public auction” which is usually held at the local courthouse. “Notice” to the public of a judicial sale is ordinarily governed by state law, and usually occurs by publication in the local newspaper. (xiv) Another Chance. After the “notice” is published locally, and prior to the actual sale or auction of the property, many lenders will give the consumer another chance to make good on the mortgage loan by paying the amount due and owing, plus penalties, interest, attorney fees and costs. (xv) Deficiency Judgment. If the homeowner still cannot pay the lender, the property will be sold to the highest bidder. When this happens, the consumer must move out of the house, often immediately. If the property is sold for less than the total amount owed on it (owed on the mortgage loan), a deficiency judgment could be pursued against the consumer by the lender. (xvi) Court Auditor’s Report. Further, in addition to the “deficiency judgment,” (xv) supra, the Court Auditor, in his or her Report, could find additi