Foreclosure News Blog

October 1 a new Florida law went into effect that makes it illegal to charge up front for home redemption or short sale processing services unless you are an attorney. Many investors have moved into the business of home redemption, helping homeowners to request loan modifications and forebearance agreements, while others are working with homeowners to negotiate a short sale with lenders.

On average, specialists in the foreclosure market have charged from $500 to $1500 up front to manage the paperwork process and negotiate with the lender.  It is a time-intensive process, and there is, frankly, no guarantee that the bank will accept the proposal.  To make sure there is some financial reward for starting the process, most charge something up front.

What seems to be happening is that now homeowners are spending more, because the average attorney fee to get a loan mod or negotiate a short sale is $1500 to $2500.  Many investors and Realtors continue to charge, at great risk of being reported to the state Attorney General’s Office.  The fines are very stiff.

I recently listened to a teleconference where members of the Ft. Lauderdale Real Estate Investors organization interviewed two attorneys from the State of Florida who were involved in writing the legislation.  It became clear that most of the ways Realtors and investors have invented to get around the law are not, in fact, legal, including aligning with an attorney and running the business through the attorney’s office.  This could be construed as practicing law without a license.  A definite no, no!

The only process that the two Florida Attorney General’s office lawyers found to be viable is by breaking the service into small pieces and billing for services completed in small increments.  This limits the loss if the homeowner backs out or gets a negative reaction from the lender, but gets payment for services actually rendered immediately after the service is complete.

So, investors and Realtors trying to help Florida’s desperate homeowners, be aware that you need to follow the new law.  To ignore it is risking your client turning you in to the state Attorney General’s office and being fined $15,000.  That money, by the way, specifically goes to the homeowner and not the lender, so there is great incentive for homeowners to turn in anyone who is not offering completely above board service.

Liz Nichols

The Southwest Florida Real Estate Investor’s Association publishes a regular newsletter for members.  Some interesting statistics are included in the New Years issue.  December saw a total of 2304 lis pendens filings in Lee County, Florida, while only 863 properties were conveyed due to foreclosure.  It is hard to tell exactly what is going on but the best guesses are that:

–The uptick in foreclosure filings is due to a hurry on the part of the mortgage lenders to get to the courthouse before the end of the calendar year.  Florida has asked for a voluntary moratorium on homesteaded filings, and the REIA group is trying to determine whether the largest portion of actual filings were in the non-homestead group, or whether the mortgage lenders are ignoring the government’s call for a homesteaded filing moratorium.

–Filings are not at their very highest.  They bounce around, but they are still somewhat lower than earlier in 2008 when filings bounced up above 2500.  It is hard to say if this is a sign of a downward trend, or whether the process will see a second round in the coming year.

–There is a large backlog of delinquent mortgages that have not been filed on.  The REIA is not sure what is going on.

I’ll venture an opinion on that one.  More mortgagelenders are trying to be proactive in coming to a solution short of foreclosure and are willing to hold off on a formal filing in order to work out a modification deal or a short sale with the homeowner.

Other lenders are taking completely the opposite approach.  They essentially shut down communications and go after the owner with all barrels blazing to sue personally.  This latter scenario is particularly the case when the owner is an investor living in another state and the mortgage holder suspects that there are other assets that can be seized to make up for the difference between the mortgage owed and the current value of the property.  Mortgage lenders may well be granted full restitution in a personal suit and get the judgment faster, than waiting for a traditional foreclosure judgment in a state absolutely backed up with cases, like Florida.  In heavily impacted states like Florida or California, there’s no guarantee a judge will grant a deficiency judgment.  After all, the householder probably had less to do with the drastic loss in market value of the property than the lender, whose risky lending practices precipitated the slide in property value.  Why should the householder have to pay for the loss in value, when it was very much beyond their control?  At the very least, shouldn’t the lender share in the loss due to the bad economy?

The poor home owner who gets slapped with a personal suit has little recourse except to file for bankruptcy, unless they really are flush with assets.  When that happens, everyone loses.

–The Lee County, FL Clerk of Court is expecting an avalanche of deeds to be conveyed in the new year.

Liz Nichols