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Foreclosure procedures are not as simple as people believe

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By : Graham Ginsberg    99 or more times read
Q: I am behind in paying my mortgage, and am afraid the bank will throw me out of my house. Can you tell me what is involved with foreclosure of a mortgage?

A: What is commonly referred to as a mortgage usually involves two documents.

A promissory note establishes the debt. In signing the note, you agree to repay the lender funds advanced on your behalf.

The promissory note usually includes the rate of interest (which can be adjustable) and the terms of repayment (i.e., monthly payment), higher rate of interest if you fail to make payments and attorney's fees in event collection is necessary.

The debtor also signs a mortgage. The mortgage is the document that gives the lender a lien against real property to secure the debt of the promissory note.

The mortgage can contain a variety of provisions. Most mortgages include the requirement that the property be insured, taxes paid, no other liens be allowed, and that the mortgage be paid upon sale or transfer of any interest in the property.

Many people believe they get a mortgage from a bank. That is not correct.

A borrower gets money from the bank and gives the bank a signed promissory note and a signed mortgage to secure the note.

When you fail to make a payment, action by the lender is governed by both statute and terms of the note and mortgage.

Most mortgages contain a grace period after which a late payment penalty is due. In some cases, failure to timely make a payment is a default and the lender can proceed with suit immediately. In most, some notice is required to the borrower before the lender files suit.

The lender has two options when you default under the note and mortgage.

Under the first option, the lender can pursue a money judgment under the note alone and then seek to collect.

Under the second, the lender may foreclose the mortgage. Either option requires the filing of suit, and the property does not automatically revert to the lender.

There are two basic foreclosure procedures available in Florida.

One is a fast-track procedure that requires filing of affidavits and proof of indebtedness at the time suit is filed. Most lenders do not utilize that approach, as it can actually end up taking longer if the borrower defends.

The second procedure is by filing suit. The first part of a foreclosure lawsuit is similar to any other lawsuit. The lender files a complaint in which the lender claims the borrower has not paid the indebtedness, and requests the court to determine the amount of indebtedness. The borrower is served with the complaint and has 20 days to respond. Ultimately, the court will issue a judgment determining the amount due.

As part of the foreclosure process, the lender will also ask that the property described in the complaint be sold by the court if the borrower does not pay the debt. By statute, the sale date is not less than 20 days or more than 35 days after the date of the judgment.

When the court determines the amount due, the court also determines the amount of attorney fees, interest and court costs to be awarded. These are included as part of the judgment.

If the judgment is not paid by the sale date, the property is sold to the highest bidder, who may or may not be the lender.

In Collier County, foreclosure sales are conducted at the courthouse. The foreclosure clerk conducts the sale and bids are accepted from those in attendance. The lender may bid all or part of its judgment, while others must actually pay the amount of their bid. Once the property is sold, the borrower's right to redeem the property by paying the judgment is terminated.

Contrary to popular belief, a foreclosure judgment does not award the property to the lender. It merely determines the amount of the debt and orders that the property be sold if the debt is not paid.

If the property sells for less than the amount of the judgment, the lender may seek an additional judgment against the borrower for the shortfall. This is known as a deficiency judgment. In order to obtain a deficiency judgment, the lender must show that the value of the property at time of sale was less than the indebtedness. This usually requires expert testimony (i.e. from an appraiser) and not merely showing that the property sold for less than the debt. This is because mortgage foreclosures in Florida are procedures in equity, and courts of equity attempt to do what is "fair."

Since most properties at foreclosure sale are sold for far less than actual worth, the court requires proof of actual property value to consider entry of a deficiency judgment. Entry of such a judgment is at the discretion of the court, and is subject to general considerations of fairness and equity.

As you can see, foreclosure proceedings are not as simple as many people believe. Just because you have fallen behind in paying your mortgage does not mean that you will be immediately evicted. However, you should retain an experienced attorney for legal advice concerning your particular situation and attempt to work with your lender to avoid losing your investment and further damage to your credit.
Graham Ginsberg is not an attorney and you should always retain an experienced attorney for legal advice concerning your particular situation and attempt to work with your lender to avoid losing your investment and further damage to your credit.

Consider investing in Florida Foreclosures, cheap real estate in Florida.

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