The financial crisis has created some bizarre legal scenarios. Usually, we hear horror stories about a family losing their home over a technicality on their contract with the bank. Now, a legal technicality is working in favor of many Florida homeowners in foreclosure.
Foreclosure laws vary greatly between states, but in Florida banks must get a judge to sign off before proceeding with a foreclosure. With so many cases flooding the system after the financial crisis, the foreclosure process can takes years. Meanwhile, homeowners are allowed to remain in their homes.
Some homeowners have remained in their house for more than five years, and now they are saying their foreclosure cases should be thrown out based on the statute of limitations.
Foreclosure law may be murky, but the statute of limitations in Florida is clear. If a contract is broken, like a mortgage, the bank has five years to foreclose on the property. After five years, no matter how egregious the offence, the case can be thrown out.
Indeed, judges have thrown out several cases in Florida, barring banks from continuing foreclosure on homes.
Unsurprisingly, banks aren’t too pleased with these rulings, but are themselves partly to blame.
Faced with so many foreclosure cases, banks and the law firms they hire have become sloppy and frequently abusive. Foreclosure cases are confusingly juggled between various law firms and banks, resulting in incorrect paperwork, missed court dates, and excessively long delays.
Disorganization and missed court dates lost Deutsche Bank a foreclosure case against a homeowner’s association in Florida. In Deutsche Bank vs Harry Beauvais, Judge Frank Shepard ruled that the statute of limitations had expired, and the bank could not proceed with foreclosing on a $1.5 million dollar penthouse. The case was thrown out initially because representatives from the bank kept missing court dates. The bank appealed, claiming the clock had reset on the statute of limitations after the initial dismissal. The judge rejected their interpretation of the timeframe and denied their appeal.
But homeowner’s aren’t home free yet. A judge can stop a foreclosure, allowing homeowners to stay in their house, but a bank can still sue for the amount of the mortgage or place a lien, so when the house is sold, all proceeds will belong to the bank.
The issue is now going to the Florida Supreme Court, where both lenders and homeowner’s hope to have their say in the matter.
As the first waves of panic hit during the financial crisis, banks weren’t very receptive to mortgage modification. Foreclosure notices were sent out en masse. Many eligible borrowers were blanketly denied requests to modify their mortgages.
Banks are now realizing their mistake; foreclosure can be messy. Mortgage modification can be the best option for both lender and borrower. Instead of hoping for a legal technicality, its best to take action and speak to a loan modification specialist.