Although home foreclosure has lessened in recent years, home foreclosures are still an issue due to the economy. Recent statistics from RealtyTrac show that there were nearly 80,000 foreclosures during March 2018 and that Florida makes up nearly 10% of these filings. With Florida foreclosure filings above the national average, understanding the Florida home foreclosure process and what you can do if you find yourself in trouble is very important.
Each state has their own home foreclosure process. To foreclose on a home means that the lienholder is going to take possession of the mortgaged property. This article will focus on Florida laws but can be generally applicable to all states that use a mortgage and have a judicial foreclosure process.
Florida House Bill 87
The general process for judicial foreclosures found in Florida is for a lender to file a lawsuit in court. As the borrower, you will be served the complaint and given a summons. If the bank wins the case, then a judgment is entered and the lender can sell the property to pay off your debt. (These steps are described in greater detail below.)
Starting in June 2013, House Bill 87, also known as the Florida Fair Foreclosure Act, went into effect. The purpose of this law was to speed up the foreclosure process, so it is important to understand how they can affect you during the foreclosure process. This article will specify the new law changes throughout each detailed step below.
1. Begin By Talking With Your Lender
Foreclosure actually begins with the homeowner. If you are not making timely payments and get behind, your lender can choose to begin the foreclosure process. However, this does not have to happen. You may have options to help you get caught up again through the lender or sell the property to get out from under the financial burden, as will be explained in a later section.
The first thing you should do if you find yourself behind on payments is to contact your lender. Lenders, like homeowners, would prefer to avoid foreclosure. This means that they will try to work with you whenever possible. Some things your lender may do can include:
- Reinstatement – Allows you to make a one-time payment that catches you up on the missed payments.
- Forbearance – Allows you to spread the missed payments out across several months until you catch up.
- Loan modification – Allows you to restructure the loan permanently to provide for more affordable payments.
As a homeowner, the key thing to keep in mind is that a missed payment does not have to lead to foreclosure. There are many ways to become financially stable again in your home. Always start by discussing your issues with your lender or loan servicer to see what can be done. Then, look at the options to see if one works for you. If you are able to get caught up and wish to stay in your home, then you should do what you can to get caught up with your lender’s help.
Whether a lender can work with you will often depend on whether your financial problems are temporary or permanent in nature. If you are experiencing a temporary setback, such as an illness that put someone out of work for a short period of time or a job loss that has already been rectified, then lenders will try to get you back on track. However, if your financial situation leaves you permanently unable to pay for your home, they will be forced to begin the foreclosure process.
If the lender is unwilling or unable to work with you to catch you up on your missed payments, the foreclosure process officially begins.
2. Look For Lender Notices
The first letter you will receive from your lender is known as an initial notice of default. This simply means that they are letting you know that you have not met the financial obligation you agreed to meet.
Depending on the lender, you may receive one letter or several. It is also possible that you will receive a phone call.
By law, at least one letter must be sent. This letter is usually sent 30 to 60 days after a payment deadline has been missed.
It is during this time that you have the option of working with your lender to get caught up or work with someone to buy your house as we will discuss in a later section. Simply because you’ve received such a letter does not mean that the foreclosure process has to move forward. At this time, you are in the pre-foreclosure process and have options available to you.
3. Avoid A Foreclosure Filing
If you’ve been unable to catch up on the payments after receiving your initial notice of default, the lender will file legal paperwork to begin the foreclosure process. The Florida home foreclosure process has always been a speedy process from start to finish for:
- Uncontested cases
- Cases with no legitimate defense
Due to House Bill 87, any lienholder can request an order to show cause as to why the foreclosure should not go forward. This allows the homeowner to file a response.
- Fail to file a response
- Respond without contesting the foreclosure
- Fail to show up to the hearing
- Lose the hearing
Then the lienholder (bank, homeowners’ associations, condo associations, etc) will be awarded a judgment of foreclosure and the clerk of court can order the sale of the house.
Prior to House Bill 87, only lenders could initiate this expedited process. Because more lienholders now have the ability to push the foreclosure through, homeowners need to be aware that they may have less time to work with their lender, to consider selling their home, or to prepare to leave the property.
However, House Bill 87 does slow the process down by requiring any lienholder to prove that they have the right to foreclose. To do so, they must:
- Have the original promissory note
- A clear chain of endorsements, transfers, or assignments of a promissory note if the note is not in their possession
This can often slow down the process a bit to allow homeowners a chance to make appropriate plans with the lender or a buyer.
Finally, the new law made foreclosure judgments final. As a homeowner, you will have no recourse to get your home back if:
- You were properly served
- The judgment of foreclosure was entered
- The appeals periods are over
- The property is now owned by someone not involved with the foreclosure process
This allows the lienholder to transfer the property to the new owner more quickly.
4. Avoid Foreclosure
Once the lender has a judgment of foreclosure, the next step is the sale or auction of the home. Keep in mind that lenders are not in the home buying business. They will work quickly to get the home sold. The most effective way to sell the home quickly is to offer it at a price decidedly below its current market value.
What does this mean for you? There is a possibility that your home will sell via the lender at a price below what you owe to the lender. This difference is known as a deficiency. The lender will then have the opportunity to collect this deficiency from the original homeowner.
House Bill 87 has changed how deficiency judgments can be collected. Beginning in 2013,
The lender can only seek a deficiency judgment for one year on single-family residential homes
The deficiency judgment cannot be more than the difference between the judgment amount and the fair market value of the home at the time of the sale. This is true for deficiency judgments for short sales.
5. Sell Your House
If your situation is such that working with your lender to modify your loan in some way is not an answer, you may be able to sell your home to an investor to pay off your mortgage quickly. Yes, you will still lose your home, but you can:
- Maintain a better credit rating – a foreclosure weighs far more heavily on your credit than a few missed payments and stays on your credit report for seven to 10 years.
- Opportunity to walk away with money in your pocket to start over
If you determine that selling your home is the best possible solution, there are two options to consider. One is a short sale. The second is an as-is cash sale.
What is a Short Sale?
A short sale is a term meaning that you are going to sell your home for less than the amount you owe on the mortgage. This type of sale is done when you have few options, especially when you owe more money than your house is worth. This could lead you to have a deficiency judgment with your lender.
In order to sell your house as a short sale, your lender would have to approve the sale. Unfortunately, this can take up to 120 days. The reason for this delay is that the lender will offer a mortgage for the new buyer and all necessary paperwork must occur for that to happen.
If they do not also stop the foreclosure proceedings during this time, you could end up with a foreclosure judgment before getting the short sale. The best way to handle a short sale is to talk with your lender prior to getting your initial Notice of Default.
As-Is Cash Sale
A much faster way to sell your home is to sell it as-is in a cash sale. If you work with an experienced home investor, they will be able to offer attractive terms to a bank and get a much easier approval. An as-is cash sale works best for homeowners that have equity in their home.
For instance, if you owe $75,000 on a $175,000 home, you have $100,000 equity in the home. A home investor could offer you $75,000 to pay off the loan and then provide you with some additional cash to allow you to start over again.
Whether a cash sale will work for you depends a lot on how much money you owe and how much your home is worth. This extra cash can be used to get into a rental home or put money down on a smaller home with a more manageable mortgage.
Some people are only able to get out of their loan without any extra cash. However, this keeps you from ruining your credit with a foreclosure.
The great news about a cash sale is that investors can make an offer quickly – sometimes in as little as 24 hours. Closings can be completed within seven to 10 days. This allows you to stop the foreclosure proceedings and get on with your life.
This article gives a general description of the foreclosure process in Florida including the House Bill 87 rulings. Those facing foreclosure in judicial states outside of Florida will also find the basic steps to be similar. The takeaway should be that foreclosure is something you want to avoid if at all possible, so take action as quickly as possible when you realize that you have a financial issue that affects your ability to pay your mortgage.
For those with temporary issues, contact your lender to see how they can help you catch up on your payments. If your financial issues are more permanent or you simply want to move on from a financially tight situation, then you should speak to an investor about your short sale or cash sale options.
No matter what, do what you can to keep a foreclosure off your record. Doing so will allow you keep your credit score intact, which is important for future rental properties or buying a new home, as well as getting credit for other purposes.
At Property Nation, our mission is to make the house selling process easy for you, the homeowner, no matter what situation you’re in. We purchase homes from homeowners who face difficult financial hardship or who simply want to sell their house without the hassles.
We understand how difficult it can be to face foreclosure, inherit a rundown property, go through a divorce, lose your job, be forced to relocate or just deal with costly repairs or property damages. Whatever your situation, we’re here to help you.
Contact us to speak about your options if you are facing foreclosure.