Our thanks to Richard Zaretsky, Esq. for allowing us to re-blog this excellent article that sheds more light on the complicated short sale process. While it seems to many folks that banks would not foreclose when they know that the property is in the process of a short sale or a loan modification, banks just don't 'think' the way most of us 'think'... Richard provides links to other articles he has written on related topics that we recommend you read.
Why does the bank file and aggressively continue a foreclosure suit even though you are negotiating a short sale or modification of the loan? This is a most often asked question and although I have visited the question before; the concept of the lender dealing separately with the left hand than with the right hand needs to be addressed again.
My previous article on it had an esoteric title, FORECLOSURE EXPRESS VS. LITTLE ENGINE THAT COULD. A picture of those ideas you may conjure up are shown right below.
Except for a few re-blogs, you might have missed it. It gave at the time a very brief synopsis on how the interaction regarding foreclosures has evolved over the years since the mortgage foreclosure bonanza began. However that article was a true short blog - almost eligible for Twitter for its brevity- and was not consistent with my detailed discussions. So sorry for the delay, but it is about time this matter was properly dissected. This article is the real story on the Foreclosure Express (the foreclosure suit aggressively pursued by lender's attorney) vs the Little Engine That Could (the short sale or loan modification tedious process pursued by the borrower to avoid the foreclosure judgment and sale).
First, you have some reading to do. To understand the short sale process, please pour a cup of coffee and review the article, SHORT SALES PRIMER - LAWYER DISCUSSION OF THE SHORT SALE EVOLUTION. Reviewing the loan modification process is far more complicated as it is influenced by lenders individually and supposedly the US government. A good place to review the general concepts is at the FHA Website although you can get similar information at the HUD Website too. But the best way to understand modifications is by going to court sanctioned mediation (I have done several this week) and have the mediator AND the lender's attorney scratching their heads wondering what the bank representative is thinking in formulating non-sensible decisions.
To understand the foreclosure process, see the article, A LAWYER'S EXPLANATION OF THE FORECLOSURE PROCESS.
Now that you have educated yourself, the question comes up, Why do lenders file (or pursue) a foreclosure judgment even though there is a pending short sale or loan modification?
The Good Old Days - Once upon a time there were very few foreclosures and lenders were just plain happy to extend credit to buyers of homes. Where there was a financial problem and a foreclosure had to be filed, it was a no big deal event for the bank's lawyers and (in Florida for example) the time line from filing the suit to the foreclosure sale was about 100 days.
Once Upon A Time Is History! Come the financial meltdown of 2006 and recession thereafter, foreclosure filings by the banks became a tsunami swamping the banks' attorneys, the clerks and court and the court systems. Insufficient resources made it seem that files were slipping through the cracks and the 100 day timeline became almost typically over 700 days! In Palm Beach County, Florida (where I live and work) the caseload in the clerk's office went from less than 1,000 cases to a peak of over 52,000 foreclosure cases pending. This caused great delays in processing foreclosures. This is only one of the many reasons why you may have heard of people living in their homes for two or more years without making a mortgage payment! And it is not just the court that is backed up. Today I was in a foreclosure mediation and the lender's attorney told me she had 1,200 files she was personally handling. I can tell you that the most an attorney can "sort of" competently handle is about 400 simple foreclosure files at one time.
Do We All Have A Common Goal? Do all short sellers cooperate with the short sale process? The answer is a resounding NO. The short seller is typically living in the house "for free" and is not all that interested in moving out and paying rent. Therefore, short sellers are notoriously delay oriented. Banks believe this to be a fact.
I Want To Stay! Loan Modification borrowers are in a somewhat different boat. They don't have any plan to move out of the house as they want to modify the loan to something more affordable.
They Want WHAT!?!@? Short Sellers and Loan Modification borrowers have something in common - they have to accept the lender's terms of the short sale or loan modification or face loss of the home through foreclosure. The alternative of the loss of the house in foreclosure is usually not an desirable option. The lender can never be sure that (a) the buyer in a short sale is not going to walk away from the sale at the last minute (with nothing usually to risk - see my article, MULTIPLE SHORT SALE CONTRACTS AND HOW TO AVOID THEM), (b) the seller will accept the demands the lender conditions the short sale approval upon, or (c) the borrower will accept the loan modification terms offered by the lender (if any are offered at all).
Hurry Up and Wait? So knowing or believing all the above, if you were the lender and you knew that from start to finish the mortgage foreclosure process was going to take 300 to 700 days and the short sale or modification may or may not end up successful, would you wait 3 or 5 months for a short sale contract or for the borrower to submit complete loan modification information - BEFORE you started the clock on the foreclosure process? OF COURSE NOT! Therefore, even if you have a good faith intention to proceed with a short sale or loan modification, the lender will NOT stop a pending suit or delay filing an otherwise ripe suit for foreclosure. The result is one hand of the lender pursues solutions with the borrower and the other hand of the lender pursues solutions against the borrower - all at the same time.
Remind Me To Stop Before I Drive Off the Cliff! Even the HAFA and HAMP programs have guidelines for participating lenders that state that the lender will not have to stop the foreclosure process - but only that if a borrower is accepted into the processing of under HAFA or HAMP, the lender will not actually have the foreclosure sale! But they can go all the way to getting a foreclosure sale date set!
So if your client is trying a short sale or modification - or if you are a borrower in that position - don't be surprised when the Sheriff rings your doorbell at 6 a.m. with a subpoena and summons and complaint for foreclosure even though the nice people at the bank are helping you in your "solution". If you are 90 days or more late (typically), you should expect that visit and introduction to your foreclosure complaint very very soon. And once you get served BE SURE TO IMMEDIATELY CONTACT YOUR ATTORNEY TO DISCUSS THE FORECLOSURE AND WHAT SHOULD BE DONE ABOUT IT.
So what happens if you do indeed get the short sale done or modification granted? The foreclosure lawsuit gets dismissed and if a judgment was entered, the judgment is vacated (as if it never existed).
Just keep yourself educated and your expectations realistic! And always use the advice of a knowledgeable attorney.
Copyright 2010 Richard P. Zaretsky, Esq.
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 email: RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com Website www.Florida-Counsel.com.
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