RAO Davao City

United States Military Retiree Activities Office Davao City, Philippines

FORECLOSURE UPDATE 1 August 2008

Posted by Service Officer on July 31st, 2008

As foreclosures continue to mount, borrowers who have run out of options are turning to attorneys to fight back — and they’re living mortgage-free for months in the process.

Although the chances of ultimately keeping a foreclosed home are slim, for $1,500 to $3,000 some lawyers are offering to defend borrowers in court, causing the wheels of justice to turn more slowly. Duking it out can add months and sometimes years to a foreclosure process that in Florida already takes an average of seven months to complete. Homeowners can use the extra time to save for a move, sell the house or mull other options. Investors can continue collecting rent from tenants, recouping at least some of their losses. Foreclosure defense is proving popular enough that some South Florida bankruptcy and real estate lawyers said they were refocusing their practices to meet the growing demand. As with many issues surrounding foreclosures, the practice is not without controversy. Delaying the inevitable is costly for lenders and for taxpayers who fund the court system, according to some lawyers who represent lenders. The process may also be unethical, they claim, and can put delinquent borrowers into a deeper financial hole. Florida is a ”judicial foreclosure” state, meaning a lender must sue to force the sale of a property. Yet the majority of cases are tried without the defendant — the borrower — even showing up in court, said Timothy Kingcade, a prominent bankruptcy attorney who also defends foreclosures.

While a foreclosure may seem straightforward — a borrower doesn’t pay and the bank takes back the home — lawyers say there are numerous ways to fight:

- One way is forcing the lender to prove it owns the debt behind the mortgage by producing a promissory note. A mortgage is a security instrument pledging property as collateral for a loan if a borrower defaults, but it is not the promissory note itself. As mortgages were bought, bundled and sold off to investors, notes got lost in the shuffle, landing in vaults or warehouses around the country. Physically retrieving them can be difficult and sometimes impossible. About 80% of the time, lenders fail to attach a copy to the lawsuit, Kingcade and others said. When lenders can’t prove they own the loan, lawyers can get cases dismissed, said Peter Ticktin of the Ticktin Law Group in Deerfield Beach, whose firm has advertised foreclosure defense services on television.

- Some lawyers also ask lenders to produce all the documents in a loan file, transcripts of phone conversations with the borrower and copies of written correspondence, which can take up to a year or more to compile. Several businesses are involved, and some may have gone out of business. Kingcade said requesting and reviewing a complete file could turn up fraud or other inconsistencies leading to a successful defense, though “the bank may be entitled to its money, and 99.9% of the time the bank is absolutely right.”

Neither Kingcade nor other attorneys interviewed said seeking out such documents was intended only to stall the process, which could be considered unethical. Ticktin said many borrowers were duped by dishonest brokers and took on loans they could never afford. They could have their cases successfully mediated. Some borrowers’ payments were misdirected and not properly credited to their accounts.

Yet, for every legitimate miscommunication and misconduct by a mortgage lender, dozens of bogus defenses are filed, clogging up the courts, some lawyers said. A borrower can easily extend the sale date of a home by up to 90 days by showing up at the last hearing and explaining to the judge why more time is needed. Marc Ben-Ezra, who also files foreclosures statewide for lenders, said the borrower who seeks to delay the inevitable can face consequences. Interest rates and other costs continue to pile up as the process drags on. Borrowers could be liable for the difference between what the lender recoups from the eventual home sale and the amount owed on the loan. Plus, homeowner and condo fees aren’t being paid, which places hardships on people who are paying their debts. [Source: Miami Herald Monica Hatcher article 18 Jul 08 ++]

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