COVID-19 continues to have an impact on our everyday lives. As a result, it is imperative that each professional take an inventory on how their profession has been altered by our new reality. As legal professionals, it is incredibly important to not just understand how the Pandemic impacts the legal field, but also the ripple effect the Pandemic has had in other fields. Here, we take a look at how the legal profession and real estate profession connect through the lens of foreclosure.
What is Foreclosure?
Foreclosure is a legal proceeding to terminate a mortgagor’s interest in a property, which is instituted by a lender (the mortgagee) either to gain title or force a sale to satisfy the unpaid debt secured by the property.
Florida is a judicial foreclosure state, which means the foreclosure must go through the court system. It is important to note there are other types of foreclosure, including homeowner association (HOA) and condominium association (COA) lien foreclosures and tax deed sales, but the focus of this article is on senior lien mortgage foreclosures.
The Pre-Foreclosure Process
Whereas a real estate agent’s representation ends at the closing table, a foreclosure defense attorney’s job begins there. That is because, during the closing for a mortgaged property, the real estate agent’s buyer of the property signs the note and mortgage. That buyer is now considered a “borrower”. If the borrower fails to make a payment due under the terms of the note and mortgage they are in Breach of the contract (the mortgage). This is the first step in the pre-foreclosure process.
Since the beginning of the COVID-19 Pandemic, the Consumer Financial Protection Bureau has initiated several additional steps lenders must follow prior to initiating a foreclosure action. As a result, there may be a delay between when the Breach occurs and when the borrower receives a Demand Letter.
The Demand Letter is the second step of the pre-foreclosure process. More specifically, the institution holding the note will send a Demand Letter to the borrower once a Breach occurs specifying the amount needed to cure the default and timeframe to remit the payment. Lenders must specifically comply with these requirements, which are found in the mortgage itself. Such requirements are “conditions precedent” to litigation and must be met prior to the commencement of a foreclosure action.
Once these prerequisites are met, the lender may refer the matter to foreclosure counsel. The attorney will prepare and file a complaint with the court and record a Lis Pendens in the county official records at which time the borrower becomes a defendant in the litigation.
Parties to a Foreclosure Action
In every foreclosure action there is a plaintiff and defendant. The plaintiff is the party that brings the action. In a senior mortgage foreclosure action, the plaintiff is the lender or servicer of the loan and is always represented by an attorney. The plaintiff may change throughout the litigation as banks and servicers transfer loans.
The opposing party is the defendant. A defendant is any party who may have a possible interest in the property being foreclosed. The main defendant is the borrower. Other defendants may include the current owner of the property, the homeowner or condominium association in which the property is located, heirs to an estate when there is a deceased borrower, junior lien holders, and tenants.
Foreclosure Litigation Timeline
Once a foreclosure complaint is filed, the defendants will be served with process after which they will have twenty days to file a response to the complaint. If a defendant chooses to defend against the foreclosure, they may engage in what is called “motion practice” and file an answer, motion to dismiss, or other response to the complaint. At the conclusion of motion practice, the court will set a final judgment hearing.
If judgment is entered in favor of the plaintiff, the court will set a foreclosure sale date no sooner than thirty-five days from entry of final judgment. The foreclosure sale is a public auction either in person or online where any person or entity can bid for the property.
After the property is sold at public auction, a certificate of title is issued to the new title owner no sooner than ten days after the foreclosure sale.
If the individual occupying the property remains in the property after certificate of title is issued, the new owner may initiate an eviction proceeding to remove the occupier from the property.
The Crossroads of Foreclosure and Real Estate
In 2008 the real estate market collapsed and caused an increase in the number of homes in foreclosure. Since then, the market has stabilized. However, when the COVID-19 Pandemic hit, both the Federal and State Governments enacted moratoriums that placed a hold on a significant percentage of foreclosure actions. These moratoriums included a hold on filing new foreclosure actions and progressing active foreclosure actions to judgment or sale. Additionally, the CDC implemented a moratorium on evictions.
These moratoriums have now expired. As a result, any borrower who is past due on their mortgage may face foreclosure and any party already foreclosed upon or any renter behind in their rental payments may face eviction. This means there will likely be a large number of foreclosed properties hitting the market very soon.
The Real Estate Landscape Post-Pandemic Moratoriums
The Florida Real Estate Market was one of the few areas that saw major growth during the Pandemic. Over the last 20 months, hundreds of thousands of people relocated to Florida, where property prices have increased ten-fold. With the moratoriums lifted, the Federal Government, through the Consumer Financial Protection Bureau, has taken measures to protect homeowners from facing immediate foreclosure or eviction, including federally backed programs to help homeowners stay in their homes and provide tenants funds to avoid eviction. Many Floridians are unaware of such programs or do not qualify for such relief and are on the precipice of facing foreclosure or eviction.
For Real Estate Agents, this means an influx of Client calls regarding properties in foreclosure or under the threat of foreclosure. Additionally, an increase in properties involved in or under the threat of foreclosure will likely coincide with an increase of short sale opportunities for Real Estate Agents’ clients.
Allow Us to Help
The foreclosure defense lawyers at Scarnecchia Mullin, PLLC can help counsel you and your clients in the complex world of foreclosure. After working for the banks and servicers for nearly a decade, our Attorneys understand how to best navigate the foreclosure world and successfully guide our clients in meeting their financial obligations and avoiding foreclosure. Our Attorney’s understand Real Estate Agents and foreclosure defense attorneys working together is best way to achieve these goals. Contact us today to set up a consultation and allow our foreclosure experts to review your case and counsel you on your options.