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Nuts and Bolts of Residential Mortgage Foreclosures


a.  Mortgage- a document that places a lien on real property to secure the payment of a loan reflected in a promissory note;

b.  Promissory note- document reflecting the amount a borrower pays and the terms under which it is to be repaid.

All owners of property, and their spouses when it is their  homestead, have to sign the mortgage that establishes the lien on the property, but not necessarily the promissory note that obligates only the signers to repay the debt.  If a spouse is a co-owner of the property, but has bad credit, the Lender may not want the souse to sign the note.  If only one spouse owns the property, only the owning spouse would sign the note if it is not their homestead.  This distinction is important for reasons described below.

About 30% of residences are mortgage free.  70% have mortgages, ½ of which are underwater in our State and county.  35%!  The Mortgage Bankers Association National Delinquency Survey found as of September 30, 2012, Florida currently has 13% of its residential mortgages in foreclosure, the most in the country.  New Jersey is next with about 9%.  The Lending Process Services estimates Florida has another 19.8% of its mortgages that are in foreclosure or are 30 days delinquent.  Volusia County has about 285,000 parcels of property and has averaged about 6,000 foreclosures per year since 2008.  There were 430 filed in March of 2013.  Flagler has the highest foreclosure rate in Florida at 1 in 22 and Volusia has 32nd highest rate at 1 in 45.

Florida is one of 23 “judicial” foreclosure state v. 27 nonjudicial states.  This means that a lawsuit has to be filed in your local court to prosecute your foreclosure claim. On average, it takes 858 days from filing to foreclosure sale in Florida.  This is because a Lender is required to file a law suit, produce the original note if they have it, confront defenses raised and get hearing time in an overcrowded court system.  Nonjudicial states take less than ½ that time.   Florida is also a “recourse” state.   This means that if a Lender forecloses on a piece of property, it has the right to pursue the borrowers or guarantors for a “deficiency judgment.”  As an example, if the borrower has a $200,000 mortgage and is in default, the Lender can sue them for the $200,000.  Once the Lender gets a judgment, a foreclosure sale is scheduled.  If the Lender gets the property back at the sale, it can then request a hearing to present evidence that the property is worth less than its judgment.  In our example, if an appraiser comes in and testifies that the property is only worth $125,000, the court could enter an unsecured judgment (not secured by land or other property) against the borrowers and guarantors for $75,000.   There is currently a 5 year statute of limitations from the date of the foreclosure sale to ask the court of issue a deficiency judgment.

Next blog will cover what steps an owner may take in dealing with a default, mortgage foreclosure and deficiency judgment, and what risks are involved with the different options.