Although walking away from your mortgage may be difficult to imagine, foreclosure may be your only option if you’re in a dire financial situation and your home’s equity is underwater, in other words, you owe much more than your property is worth. Sometimes a borrower has no choice whether it be the loss of a job, the loss of a spouse’s second source of income, divorce, or something similar. Other times, the borrower simply can no longer afford the monthly payments as a result of reduced income, an adjustable-rate mortgage increase, medical reasons, increased taxes, and or homeowner’s insurance. In these instances, the borrower comes to the uncomfortable realization that they can either buy groceries and essentials for their family or, stop paying their lender. Doing so is oftentimes referred to as a strategic default – and, if done properly with the help of an experienced foreclosure lawyer, in certain instances this could be the right choice to alleviate the stresses and financial burdens of a mortgage payment they can no longer afford.
Through a strategic default, the borrower homeowner has made the decision to stop making their mortgage payments. While it is always best to with an experienced foreclosure defense attorney well versed in these matters, in terms of how and when you should take action prior to making this decision, most borrowers do not. Having seen these scenarios play out hundreds of times, the worst thing a homeowner can do is put their heads in the sand. There are certain ramifications – some of which can be even worse than the foreclosure itself.
For instance, if a homeowner simply stops making their mortgage payments, the lender will have the right to move forward with foreclosure proceedings. This means the lender can force the property to be sold in foreclosure. However, the lender can also come after the homeowner for a deficiency judgment. This is the amount of money that the homeowner was “upside down” on the loan, plus all the penalties, late fees, advanced escrows, attorney fees, and costs of the foreclosure litigation.
For example, if a homeowner owes $500,000 on their mortgage, but the home is only valued at $350,000, then the $150,000 difference is the deficiency amount. Let’s say the costs of litigation, attorney fees, missed mortgage payments, and money advanced by the lender is another $15,000, after the lender sells the home at the foreclosure auction $350,000, then the borrowing homeowner could be at risk for the lender coming after them for the total difference of $165,000 – the deficiency judgment amount. If the home sells for less than $350,000 at auction, then the total amount owed is greater. In Florida, a final judgment is good for twenty (20) years. This is a long time for a borrower(s) to have this hanging over their head(s) and now they no longer have the property. Even if the lender does not come after you for the deficiency judgment amount immediately following the foreclosure, the lender, or some other third-party debt collector could opt to pursue you at a later date in the future by initiating a second lawsuit.
It’s critical that the homeowner borrower does not put their head in the sand and get out in front of this immediately. There may be options like a short sale, loan modification, or deed in lieu of foreclosure. Sometimes moving fast can avoid a foreclosure lawsuit and the costs and stresses associated with it entirely.
For additional information on your best options, as well as the potential advantages and drawbacks of each, you should speak with an experienced foreclosure defense attorney. Contact us for a complimentary consultation and we will walk you through what you can expect from each potential situation.