Common Myths About Underwater Homes

a gavel and a house representing foreclosure

Sometimes, it seems as though homeowners in Florida cannot catch a break. Just as the state was beginning to recover from the recession in 2008, the pandemic hit. Homeowners did not know how they were going to pay their mortgages and suddenly faced the possibility that they may lose their homes. Now, foreclosures are once again soaring in Florida, and that wave has also caused many home prices in Orlando to plunge. Sadly, many homes are now underwater, meaning the amount on their home loan is more than the home is worth. Many underwater homes do eventually end up in foreclosure, so it is important to understand some of the most common myths associated with them, which are found below.

The Lender Cannot Foreclose While I Am Negotiating With Them

This myth probably came about because some government and government-backed loans stipulate that the bank must stop any foreclosure action after a short sale, or loan modification. However, these procedures must already be filed in order for that law to come into effect. That means that the short sale must have already closed, or a loan modification must have been signed in order for it to be unlawful for the lender to proceed with a foreclosure lawsuit. Too many homeowners have lost their homes thinking that the lender could not proceed when in fact, they could.

I Do Not Have to Negotiate a Short Sale or Loan Modification Until the Foreclosure Sale Starts

One of the biggest mistakes homeowners make when they are facing foreclosure is that they simply wait too long before they start working with their lender. The truth is that once a foreclosure sale has started, there is typically little a borrower can do to stop it, and it is too late to start negotiations with the lender at that time. The best thing to do is to contact your lender as soon as you fear foreclosure, as you will have the most time possible at that point to work with them.

A Deed-in-Lieu of Foreclosure Is Better than a Short Sale

It is true that short sales have some consequences. For example, the lender may pursue a judgment against the borrower for the amount remaining on the mortgage. Or, the lender may make a request for an unsecured promissory note to be repaid to them. These are just two of the possible consequences of a foreclosure, but threatening the lender with a deed-in-lieu of foreclosure is no better than a short sale. Firstly, the lender must agree to both a short sale and a deed-in-lieu of foreclosure. More importantly, a deed-in-lieu of foreclosure carries all the same consequences as a short sale, so you will not be avoiding anything by going that route.

Even worse, some people think simply allowing the lender to foreclose is better than a short sale or a deed-in-lieu of foreclosure, which it is not. Foreclosures have a much more negative impact on a credit report than either alternative to foreclosure, so it is best to always try to negotiate with the lender and try to come up with an alternative solution.

I Have Filed for Bankruptcy, so the House is No Longer Mine

It is true that when a bankruptcy case is filed, there is a chance of losing the home. However, all debts, including your home loan, are yours until the bankruptcy is finalized. Due to the fact that Florida is a “lien theory” state, you own the home until you voluntarily sell it, or until the trustee or lender takes the home. If they fail to take these actions, the home is still considered your property.

Additionally, when you file Chapter 7 or Chapter 13 bankruptcy, you will fill out a Statement of Intentions. This statement is intended just as it sounds. It is your intention of what you are going to do with the home. Filling out this statement does not mean that the house is no longer yours.

Threatening Bankruptcy Will Force the Lender to Work with Me

First, it is never a good idea to threaten your lender when facing foreclosure. Lenders and their attorneys understand the laws of bankruptcy very well. Just as threatening to allow the lender to foreclose, threatening that you will file bankruptcy will not give you any leverage against the lender.

The Bank Cannot Foreclose if They Do Not have the Original Note

This myth is somewhat rooted in the truth. It is true that lenders must prove they own the original loan, which they can do with the original note. If they cannot produce this, there is a chance it could serve as a defense to foreclosure. However, even when the lender has lost the original note, there are some exceptions to the rule. A lender can still foreclose without the original note if:

  • They present evidence showing they owned the loan at the time the note was lost;
  • The note stipulates that the bank is entitled to start a foreclosure lawsuit; and
  • The loss of the note was not due to the transfer of the owner.

Still, even with these exceptions, lenders will generally find the original promissory note and file it with the court when pursuing a foreclosure lawsuit. As such, it is generally not in your best interest to assume that because the lender lost the original note, they cannot foreclose on your home.

Our Florida Foreclosure Defense Lawyers Can Help with Your Case

There are many myths surrounding underwater homes and foreclosures. If your home is underwater and you are in fear of losing your home, our Fort Lauderdale foreclosure defense attorneys can help. At Loan Lawyers, we have helped thousands of homeowners keep their homes, and we know the defenses available that may help you keep yours, too. Call us today at (954) 807-1361 or contact us online to schedule a free consultation with one of our knowledgeable attorneys and to learn more about how we can help.

Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.