(Source: By Gary M. Singer Sun Sentinel (MCT) — QUESTION: I listed my home for a short sale in October and recently received a contract from a buyer. I’m waiting for the bank’s approval. At the end of March, I was served with foreclosure papers. How is this possible if I have a contract on the property?
ANSWER: This happens quite often. It’s a common misconception that the lender won’t file a foreclosure lawsuit against you if you are negotiating a short sale or loan modification. You should expect to get served with a foreclosure lawsuit four months or so after you stop making mortgage payments. When you try to complete a short sale, it often takes a month or two to get it under contract and 45 to 90 days to get an approval from the lender. If you fail to respond to the foreclosure within 20 days, you will be in default and will have waived valuable rights in defending the lawsuit in case the short sale falls through. I recommend that you see an attorney about responding to the lawsuit.
Q: Can I quit-claim my house to my daughter without notifying my mortgage lender?
A: No, at least not without breaking the terms of your mortgage loan. Most loans have a “due on sale” clause that states that if you transfer the property, you need to immediately pay back the full balance. So while there is nothing stopping you from deeding the house to your daughter, if your lender finds out, it can sue you and your daughter to foreclose the home. It is a much better idea to try to get your bank’s permission, or have your daughter buy it from you using a new loan.
(EDITORS: STORY CAN END HERE)
Q: When a short sale or foreclosure is sold, what happens with the remaining balance?
A: In Florida, you still owe it. When you borrow money to buy a house, your mortgage loan has two components: the mortgage and the loan. The loan is your promise to pay your bank the money that you borrowed from it, usually called the “promissory note.” The mortgage is the document that you sign to pledge your new home as collateral that the bank can take back, or “foreclose” in order to help it get paid back.
In most states, if the value of the collateral at the foreclosure is not enough to pay back the loan, the borrower will still owe the rest of the money necessary to pay back the loan. This is called the “deficiency,” and the bank can get a judgment for the balance and can collect that from you like any other judgment.
Q: I want to help my daughter buy a townhome in Florida. It will be her primary residence. If I were to be a co-borrower on the mortgage loan, can she still claim the homestead exemption?
A: Yes, she can still claim the homestead exemption as long as she otherwise qualifies. Some lenders will require you to also be on the title to the home in order to qualify for the loan. This varies, so you may want to shop around to find the loan that suits your situation.
ABOUT THE WRITER:
Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He is the chairperson of the Real Estate Section of the Broward County Bar Association and is an adjunct professor for the Nova Southeastern University Paralegal Studies program. Send him questions online at http://sunsent.nl/mR20t7 or follow him on Twitter @GarySingerLaw.
The information and materials in this column are provided for general informational purposes only and are not intended to be legal advice. No attorney-client relationship is formed. Nothing in this column is intended to substitute for the advice of an attorney, especially an attorney licensed in your jurisdiction.
©2012 the Sun Sentinel (Fort Lauderdale, Fla.)
Visit the Sun Sentinel (Fort Lauderdale, Fla.) at www.sun-sentinel.com
Distributed by MCT Information Services