Keeping Watch: Foreclosure Rates and Owner Defenses

Posted September 26, 2011 in Uncategorized by Heather McGowan

What’s behind the recent foreclosure filing stats? Well, notices of default, when a lender files a notice that a borrower hasn’t made payments, were up in August, by over 30 percent over July. It’s a key first step on the road that may end with foreclosure.

 
  • Foreclosure rates on the rise again
  • Some lenders are back in court for a second try at foreclosure
  • Know the substance and defenses behind your case

 

Once a homeowner gets a notice of default, the clock is ticking, and depending on state foreclosure laws, a foreclosure lawsuit can be next. The lender sends a foreclosure complaint to the borrower, who needs to be ready with a response and an action plan.

Is a Foreclosure Complaint Coming Your Way for a Second Time?

There’s more than one way to look at the foreclosure stats, and one explanation for increased filings is that lenders are starting to get derailed "robo-signing" foreclosures and other dismissed cases back on track.

Florida continues to lead the nation in foreclosures, and its courts forced a response to robo-signing. Lenders must swear to the truth and accuracy of information in a foreclosure under revised affidavit requirements. Lisa Wilcox, a St. Petersburg, Florida real estate attorney, shared her experiences in helping clients cope with a foreclosure. Wilcox commented, "Many foreclosure cases have been dismissed, either based on lack of documentation or the lender filing the foreclosure lawsuit lacked standing."

Dismissed Cases, Lender Limbo and Alternative Solutions

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Wilcox has seen an increase in refiled foreclosure cases, after a first try fails. One defense a homeowner has is to demand that the lender produce the note for the loan, and it’s nowhere to be found. "I see this a lot," says Wilcox, "When the note can’t be produced, judges are lenient at first, usually giving lenders 45 days to act, but they can’t fix the situation." The result? The case is dismissed. "It’s an ongoing limbo," observes Wilcox, adding she has seen foreclosures drag on for 1 or 2 years, with owners staying in the home in the meantime.

It’s not the last an owner in foreclosure will hear from the lender. "Lenders will have to come back and file a new case, eventually," explains Wilcox. A case might not end with a foreclosure sale, though. Wilcox says, "Banks know when they don’t have documentation, and they’re a lot more willing to work with you rather than go through the foreclosure process again." Wilcox also adds that a case might be resolved through mediation, finding an option more agreeable to both sides than foreclosure. More cases are ending with deeds in lieu of foreclosure and short sales.

Foreclosure Defenses: Finding Options and Getting Help

One common denominator in foreclosures, regardless of state laws, is that a homeowner won’t have much time to respond. When faced with a Florida foreclosure complaint, an owner only has 20 days to file a response with the court.

Any homeowner could find the situation hopeless and ask whether there are any real options. Foreclosure defense options are out there, which may surprise many borrowers. Do distressed homeowners know a legal defense against foreclosure is possible? What’s the typical reaction when the foreclosure complaint arrives? Wilcox answers, "A lot of owners are in shock or embarrassed, and wait beyond the allowed 20 days to do something, and judges can be a little lenient."

Getting to a lawyer makes a tremendous difference in how any given foreclosure case will end. Wilcox says cases vary locally, sometimes a lot, from county to county. If a lender refiles a foreclosure, it looks to see whether or not the owner has a lawyer, and that can impact whether or not a foreclosure alternative, ranging from loan modification to a deed in lieu of foreclosure is used.

How about owners who go it alone without legal help? Wilcox says, "When homeowners try to make arguments or defenses, the court may not take it as seriously, or see the legal argument the owner is trying to make."

It’s best to seek out a lawyer’s help sooner rather than later, but later doesn’t mean there aren’t answers. Wilcox says, "Say a sale date is pending, there are things you can do, such as file for bankruptcy. Owners are shocked there may be a chance to keep their home, or at least stay longer."

Watching for New Foreclosure Solutions

Foreclosures aren’t going away anytime soon. Wilcox notes some new foreclosures filings result from failed loan modifications, or a homeowner can’t recover from a financial crisis. A new job may not be enough to get a needed refinancing, or to come up with a lump sum to reinstate an existing mortgage.

Wilcox describes a possible solution by state lawmakers, "We may see state lawmakers step in with a solution borrowed from landlord-tenant law. When there’s a dispute, rent is paid into the court until the problem is resolved. The same idea could apply to foreclosure. When a borrower is serious and pays the mortgage into the clerk of the court, it protects both the banks and the borrower, and promotes finding a solution."

Stay tuned when it comes to foreclosure; in some respects, it’s a new world out there, from the "for sale" signs on your street, to your mortgage documents and in the courts.

Heather McGowan co-authors the Lawyers.com blog

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