Mortgage Matters Foreclosures Are Different in the East and West Last Sunday night 60 Minutes did a segment showing an Arizona 30-something couple that could easily continue making their house payments but instead made a "business" decision to walk away from their home loan obligation now that their home was worth about $100,000 less than their mortgage balance. They simply stopped making their payments and continued to live there "free" for the next 5 months until the foreclosure process was complete and the title transferred back to the lender. The 30-something couple said that they recognized that they would take a severe hit to their credit BUT with the savings from the five months of house payments (that they did not pay), they could go out and rent something nicer AND after a few years, their credit would recover to where they could buy another home! 60 Minutes said that many other homeowners were making this decision and more would be doing the same in the months and year(s) ahead. 60 Minutes then showed a map of the United States with red dots in the states with the most distressed homeowners. The only state almost entirely covered by red (with dots overlapping dots) was Florida! There was some very important information that 60 Minutes did not include in their story on foreclosures. Their story lines were based on foreclosures in the western half of the United States. Foreclosures are treated very differently in the eastern half of the country that includes Florida. Foreclosures in the western half of the United States: Homes and condos are financed through the trust deed process. The home or condo you buy is the complete (and only) security for the debt. If you are a millionaire and decide to walk away from your home loan obligation, you simply drop your keys through the lender's mail slot OR stop making your payments and simply wait through the three to five months that it takes to complete the Trust Deed foreclosure process, the lender then owns the home and you are free from any further financial obligation. Whether the lender loses $1 or $5 million, the lender cannot come after you or your assets for any part of what they lose. The only damage you suffer is to your credit. The same thing is true on foreclosures of second homes and more incredibly, even residential investment homes. Foreclosures through the trust deed foreclosure process are not judicial foreclosures and there are no deficiency judgments against you or the other assets you own. Foreclosures in Florida and the eastern half of the USA: In Florida, (in fact in the whole eastern half of this country) homes and condos are financed through the mortgage process and foreclosed on through judicial proceedings that can take a year or much longer in these times. Yes, the home or condo you purchase, is the security for the mortgage debt BUT so are you. You and your other financial assets are also the security for the debt. This means that if the home or condo you are returning to the lender is not worth as much as the amount left on your loan(s), the mortgage lender has the right to ask for a deficiency judgment against your other financial assets in the judicial foreclosure proceedings. In this mortgage judicial foreclosure process, if the homeowner is suffering a financial hardship and there are no assets to go after, the lender will often just settle for taking the home or condo back, absorbing the financial loss. However, if you are returning your home to the lender and have money, a good job, retirement income, other property and other financial assets, the mortgage lender has the right to and often will pursue your other assets, seeking deficiency judgments through the judicial foreclosure process to cover their loss they are taking on the home you are walking away from. This process comes as quite a shock to those from the western half of our country who have bought homes or condos in Florida and are now discovering that things are quite different for them in our neck of the woods and that their financial obligation often does not end when they turn their keys back to the lender. Fairness does not matter in mortgage matters: Does it seem fair to you that in the western half of the United States no matter how big the loss to the lender, all the lender gets in the foreclosure process is whatever the property is currently worth - with no possibility of a deficiency judgment WHILE in the eastern half of the country not only can the very same lender foreclose on the property but they can also go after a deficiency judgment against the person's other financial assets to offset their loss? It did not seem quite fair to me so when we moved to Florida from the western half of the country and were about to make an offer on a home, I contacted a mortgage business associate high up in Countrywide Mortgage, a mortgage company who is in every state, financing through trust deeds in the western states and mortgages in the eastern states. I asked her if I could finance the purchase of my Florida home with a trust deed. She told me that I could - BUT - it would foreclose through the judicial process, just like a Florida Mortgage. I looked at her asking her how mortgage lenders here in Florida could get away with this. She smiled at me and said, "Because we can."

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