Deficiency Judgments in the Mortgage Foreclosure Arena by: Robert S. Saraga, Esq.

Recently on October 1, 201 the Wall Street Journal published an article written by Jessica Silver-Greenberg addressing the recent increase in deficiency judgments in the mortgage foreclosure arena. In the State of Florida, along with forty (40) other states and the District of Columbia, lenders are permitted to seek deficiency judgments after real property has been sold in a foreclosure sale. In its simplest terms, a deficiency judgment is a final judgment for money damages in favor of the lender for the difference between the amount of money the lender realized from the foreclosure sale (with certain exceptions if the fair market value at the time of the sale is not realized) and the amount of money still owed to the lender after the sale.
Clearly there is a new cottage industry on the rise. There are firms and funds that are now in the business of buying deficiency judgments. Specifically, the article in the Wall Street Journal correctly states that lenders are now inclined to seek deficiency judgments from “Strategic Defaulters”. A Strategic Defaulter is a borrower that has the financial wherewithal to meet its financial obligations, but elects to default on his or her mortgage due to the fact that the property securing the obligation is worth less than the loan balance. “Some close observers of the housing scene are convinced this is just the beginning of a surge in deficiency judgments. Sharon Bock, clerk and comptroller of Palm Beach County, Fla., expects a massive wave of these cases as banks start selling the judgments to debt collectors. The increase in deficiency judgments has sparked a growing secondary market. Sophisticated investors are ravenous for this debt and ramping up their purchases, says Jeffrey Shachat, a managing director at Arca Capital Partners LLC, a Palo Alto, Calif., firm that finances distressed-debt deals.”

To read the entire article in the Wall Street Journal go to: http://online.wsj.com/article/SB10001424053111904060604576572532029526792.html

At Saraga & Lipshy, P.A., we counsel our clients to take a more proactive approach to avoid the deficiency judgment dilemma when at all possible. We have spent countless hours negotiating with lenders and have concluded that lenders would prefer not to resolve mortgage defaults through foreclosure and potentially having to take back the property. To the contrary, even when dealing with strategic defaulters, most lenders prefer to work with a borrower who has taken the initiate to put together a short sale. Likewise, borrowers are in a much better position to control their own destiny by working with a broker/realtor seasoned in short sales and an experienced law firm, such as Saraga & Lipshy, P. A. to negotiate the best possible solution; (even if it means having to bring some money to the closing table or signing a new deficiency promissory note for a portion of the short sale balance on the original note). The bottom line is that the lender and borrower decide how much the lender is willing to forgive and how much is still owed to the lender, as opposed to a judge making a final determination after the conclusion of the foreclosure sale. This is one of the many reasons why at Saraga & Lipshy, P.A. we work with some of the best real estate agents in Florida and handle their short sale closings, so that their clients can avoid the taint of having a foreclosure sale on their record and the aggravation of a twenty (20) year deficiency judgment encumbering their future.

Ian's Friend's Foundation

Normally, SLPA keeps the blog to legal matters only, but upon returning from a recent baseball tournament with my son Boomer in Atlanta, I shared the email below with my law partner Brian Lipshy and Brian requested that I post it on Blog as a reminder as to things outside the law that are important to us. A sincere thank you to Camilo G. Rodriguez, the Commissioner of Palm Beach Baseball for making it happen for Ian as well. The email below was written by Camilo G. Rodriguez on Monday June 27, 20111:

To All PBB Families, Players, Coaches and Advisory Board Members:

In the midst of winning and/or losing, deciding which tournament to go to and/or not, getting playing time and/or not, and the intensity of summer travel baseball, we all forget about the small but meaningful things in life. We all forget that what is considered minor for some is actually huge for others. What some consider inconsequential is life-changing for others. As you can see in the attached pictures, Ian is the batboy for PBB 15U while in East Cobb. He is the cousin of PBB 15U player Boomer Saraga. He was diagnosed with an inoperable brain tumor at a very young age. One of his greatest desires was to be the Bat Boy for his cousin’s baseball team. Today, Ian got his wish granted (with PBB Bat Boy Jersey and Helmet included). The good news is that PBB 15U won its first game. I think Ian brought them luck. WAY TO GO IAN!!!! If you want to, we’ll make you the Bat Boy for the 18U’s and 17U’s next week at East Cobb. We are proud of having you as our official Bat Boy. I am asking the PBB families to access the webpage below for the Ian’s Friend’s Foundation and see how you can help. With your assistance, Palm Beach Baseball will join Nike and the PGA tour as one of Ian’s supporters and sponsors. http://www.iansfriendsfoundation.com Best and Kindest Regards.

Camilo

Camilo G. Rodriguez

commissioner@palmbeachbaseball.org

palmbeachbaseball.org

Debt Consolidators Can Compound Problems

A client of the firm asked us about our opinion regarding the effectiveness and credibility of debt consolidation firms. With the exception of pointing out to him that we have always been troubled by the fact that there is always the possibility that the monthly payment does not find its way to the actual creditors; historically we did not recommend or discourage the utilization of advertised debt consolidation firms. With this said, I recently read a very well written commentary written by Elliot Raphaelson, a Certified County Court Mediator in the State of Florida. Mr. Raphaelson provides great insight into this largely unknown industry. The article appeared in the Sun Sentinel on Tuesday, January 11, 2011 and Mr. Raphaelson stated in pertinent part as follows:

"In my 10 years as a certified county court mediator in Florida, I've participated in all sorts of cases, from evictions and personal injury suits to contract disputes. Due to the poor economy, the majority of cases I deal with these days are credit-related, and most involve credit cards. Here's a common scenario:

A man loses his job, or his family is facing unmanageable health care bills. He decides to pay for food and the mortgage first. As a result, he can no longer make his usual monthly credit card payments. He sees ads from debt consolidators and debt "repairers" claiming to have easy solutions to his debt problems. All he has to do is stop paying his creditors and start sending monthly payments to a consolidator.

Is this a good choice? I don't think so. Debtors who use them generally pay high fees and may shoulder higher interest rates than they're currently paying. More important, there's no assurance that the consolidator will pay the creditors, and state and federal laws that police such programs are insufficient to protect debtors.

Consider the following case.

A Florida small-business owner was sued by a law firm specializing in debt acquisition. The firm had purchased the man's debt for pennies on the dollar from a credit card company that had written off the debt. The initial amount was $1,000 before the man stopped making payments several years earlier. The principal amount had now climbed to $2,500 due to interest charges (as high as 30 percent, plus various monthly fees). Moreover, additional expenses such as court costs, which can be $200 or more, and legal fees, which can reach $500, were tacked on.

The debtor, who contracted with a debt consolidator, was under the false impression that part of his $250 monthly payment was going to his creditors. When he went to court, he discovered that none of his monthly payment had gone to creditors. He had never received statements itemizing how the payments had been allocated, so he had no defense. It was my job to present him with the following" unpleasant options:

1. Enter into a monthly payment plan (that he couldn't afford) with the law firm that owned his debt.
2. Enter into a default judgment. (This would limit his ability to borrow and jeopardize assets he owned. His salary could also be garnished.)
3. Take the case to a judge, which would have made sense only if he could have demonstrated that he didn't owe the money or if the law firm couldn't have proved that the money was owed. (This option could result in additional legal costs.)
4. File for bankruptcy. (This option should be considered only after discussions with an experienced bankruptcy attorney).
5. 
   

If he had used a competent financial counselor from the start or negotiated with his creditors directly, he would have avoided a trip to court and gotten to a better outcome.

In my experience, the vast majority of people who contract with debt consolidators or repairers don't succeed in paying off their debts. Not only do these contractors charge high fees, they also operate without any apparent obligation to report to clients how their payments are allocated.

I always ask the debtor being sued if he had received a monthly statement from his contractor summarizing which debtors received payments and for how much. I've never had a defendant tell me he received such statements.

If you're having trouble paying your bills, you're better off either dealing with creditors directly or consulting a reliable credit counselor.

Struggling with debt can be frightening and humiliating. Your first priority should be to avoid making your problems worse by using desperate options or falling for "easy" solutions. Educate yourself about your options and persevere; you'll find a way to resolve your problems and get on with your life."

In conclusion, there are no easy solutions and a qualified credit counselor or bankruptcy attorney is always the best starting point. Anyone promising a deal that sounds too good to be true, is exactly that "not being true". The last thing anyone struggling with credit card debt wants to do is dig a deeper hole. Robert S. Saraga, Esq 1/11/11