Sometimes, in a foreclosure, you will see your bank is foreclosing with your property, and they are foreclosing on other people. These other people they are foreclosing on, might be an issue with the change of title. Generally, the title issues are going to fall under a few categories. Either there are other lien holders, who have liens on the property, and the banks want to foreclose them, or there is a prior owner of the property. Because of the defective deed, the banks believe that he might still have the title, but that there is a cloud on the title. It is not uncommon to see the person who sold you the property named in a foreclosure case, because perhaps there is some defect they find in the deed.
The bank is not going after that person, they do not have a loan with the bank, they are not liable to the bank for any money, but the bank is allowed to foreclose against any person who holds the interest, or record to the property, any interest that would exist after the bank’s mortgage. If there are liens against the property, and if you have credit card debt, and the credit card companies have filed liens against the property, those liens are going to be joined to the foreclosure. So hypothetically, if the property sold for way in excess of what is owed to the bank, then the next priority of lien holder is paid. The next judgment holder would get the proceeds that are leftover.
If everybody else is paid, and the final proceeds go to the homeowner, of course in modern reality of Florida real estate, there is not enough money to pay the first money holder in most cases. Usually, any junior lien holders are not going to receive anything, and the landowner is not going to receive anything either. If there was equity in the property, the landowner would sell the property probably him or herself, and pay off the loan, it would not allow it to get to that point.
Can The Promissory Note Play A Role In Foreclosure Defense As Well?
Yes, with the promissory notes, the person who holds the promissory note legally is the person who is entitled to the foreclosure. For years, the holder of the promissory notes was the bank you made a loan with, and that bank held the promissory note. With the real estate boom and Wall Street, they had the idea to securitize these promissory notes. One lender would sell a promissory note to another lender. That lender would then sell the promissory note to a different lender. Then maybe that third lender sells half of the promissory note to investor A, and the other half to investor B. Now you have multiple owners of the promissory note.
In actual practice, most conventional mortgages end up sliced and diced so many times that you really cannot definitively say whom is the ultimate person holding the promissory note. It is a collection of people who each hold a tiny percentage of that loan. The idea was benign that if people spread their risks out, and if they only own a portion of the mortgage, and that mortgage fails, then the exposure of shares among different institutions is the risk of default on several banks, not just one. Of course, the problem with that is that when an entire system was going through the great recession, it did not matter what your exposure was, because everybody was exposed to the same thing. Every mortgage in the portfolio was a problem. It is the bank’s obligation to come to court, and show that they are entitled to foreclose on this property.
They are required to show a chain of title, and custody. They have to file certification that says we have personally inspected the promissory note, and we have physical possession of this property. That is an important issue, because they have to file that original promissory note in the court system. They have to demonstrate the actual change of title. If it is from one bank to another and to another, which is common, they have to show all the links in that chain of custody. They have to show that the entity that has summoned you to court is the entity that holds and is entitled to do what they say they are going to do.
It is not uncommon to have problems with that paperwork, and for the bank not to be able to show that chain of custody. When you have that, it is a defense to the foreclosure. It is not a silver bullet necessarily. You are not going to win the case, the bank does have options if a promissory note cannot be produced, and the bank has the right to try to re-establish a lost note. There is a procedure for that. But, it is all part of making the bank dot all their I’s, and cross all their T’s, and do everything correctly to show that they are entitled to this foreclose.
Additional Foreclosure Defense Strategies That Can Be Used
One of the main strategies is to pursue loss mitigation. Many people will come and say that they have tried to do a loan modification with the banks, and it leads them nowhere. Under the new regulations with the consumer financial protection bureau, there is a regulation that says that as long as the borrower is involved with an active loan modification application, and they have submitted the application to the bank, and it was completed. As long as the bank is evaluating that, then a foreclosure of sale cannot be set. That is an important defense, because as long as you are in loan modification, you can stay in the house. Many times people have very little prospect of getting a loan modification, which seems very bleak.
I have seen lenders do some generous things in a way to allow borrowers to stay in the house, such as forgive principal and things like that. It can make a deal where you thought there was no way to salvage the property. The first question I always ask any borrower is whether they are trying to keep the home, and do they believe the home is worth more or less, than what the bank is after. If it is worth more, then how can we figure out a way to keep them in the house? If it is worth less, then we are going to pursue loss mitigation at the very least. We are going to try to make sure that our client has other living arrangements lined up so they can have a soft landing so to speak.
For more information on Defending Foreclosure In Florida, initial consultation is your next best step. Get the information and legal answers you are seeking by calling (386) 487-5466 today.
Andrew J. “AJ” Decker, IV, grew up in Live Oak, Florida and graduated from Suwannee High School in 1997. He attended Emory University, earning a Bachelor of Arts in Political Science in 2001. He subsequently attended Florida Coastal School of Law, graduating with high honors in 2004. AJ represents client in civil litigation matters, focusing…
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