By: Attorney Howard Iken – A new foreclosure law, effective this year has great potential to help former spouses. The Florida Fair Foreclosure Act is now in effect and has the potential to assist people connected with a former marital home that is in default. Houses with a large amount of negative equity became a growing problem during the economic downturn. Our firm has represented hundreds of people facing a divorce just at the same time when their houses lost all equity. The Fair Foreclosure Act will help to minimize consequences for divorcing couples.
A frequent situation in a divorce is where a couple divides all of their assets, including the marital home. Our legal team has seen it time and time again: couples that could afford a single mortgage were placed in a position where it became impossible to pay for two separate households. Financial stress from damaged employment prospects, support of children, and forced dissipation of assets creates an environment where mortgage defaults become common. To add insult to injury, most marriages end with both spouses still firmly obligated on mortgages and notes.
The Perfect Storm
In many situations, the “perfect storm” of facts may result in a court judgment against one or both former spouses. That judgment is called a deficiency judgment. The deficiency is the different between what was owed on the real estate versus the amount of money brought in during the foreclosure sale. The amount couple range from thousands of dollars to hundreds of thousands of dollars. And based on many different examples, the deficiency judgment and subsequent collection efforts may appear by surprise years after the foreclosure. The whole process can appear as an extremely unwelcome surprise, but the net effect can turn your entire financial existence upside down. The worse part of the “perfect storm” is the fact that it tends to happen right at the same time an ex-spouse begins to get their life back together.
The Fair Foreclosure Act will not completely insulate people from the consequences of a defaulted mortgage, but it will eliminate the problem for a large percentage of the population. Here is the key change the “Act” created: previously a lender had 5 years from the date of a foreclosure to go back to court for a deficiency judgment. That is a judgment personally against the former owners for the money the lenders lost. Now, after the “Act”, the lenders have a maximum of 1 year to file for foreclosure. Foreclosures from several years ago have a deadline of July 1st, 2014 to file a deficiency case.
Why the Fair Foreclosure Act Helps?
The simple fact is that most lenders do not file for their own deficiency judgments. They are way too busy straightening out their real estate lending portfolio. Real estate lenders tend to foreclose on property so they can then get rid of the assets on their books. As many people know, that process can be quick or excruciating slow. In any case, lenders are not “perky” enough to immediately transition into a deficiency case. That is why most lenders sell the debt to another company for a fraction of the value. Their reasoning: might as well get some money instead of no money. The process of selling the debt appears to require many months of paper shuffling, computers buzzing, and interoffice emails. Time ticks away during that process. As a matter of fact, the wasted time may even approach the one-year mark in many situations.
The Fair Foreclosure Act has a Deadline of One Year for Deficiency Judgments
If a lender, or subsequent debt buyer does not file a suit in the first year after a foreclosure – they are completely out of luck
Based on our experience that will eliminate over 75% of the unfortunate times where an unsuspecting ex-spouse gets hit with a collection lawsuit from a house they thought was long gone. If you already have an old situation in play, the law gives the lender a deadline of July 1st, 2014 to file their deficiency lawsuit.