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Second Mortgages and Reverse Mortgage Foreclosures

Second Mortgages

Second mortgages can create their own set of unique problems for borrowers. Second mortgage holders or “junior” lien holders as they are often referred to are acutely aware of their assets, their value and payment status. If a second mortgage remains unpaid and falls into default as a result, a junior lien holder is lawfully able to foreclose on the home.

As a general rule, the foreclosure of a junior mortgage does not extinguish the liens of any senior mortgagees. When the lien holder decides to file an action to foreclose on a second mortgage, it has decided there has been a default under the terms of the mortgage. Next, the mortgagee accelerates the debt as allowed by the appropriate clauses of the instrument, assuming the acceleration does not automatically take place upon default. It is important to bear in mind that no notice of acceleration is required to be made to the mortgagor; in fact, the filing of the foreclosure action itself may be sufficient to accelerate the mortgage.

Borrower defenses to the foreclosure of a second mortgage can be illustrated in three patterns. First, the defenses which go to the effectiveness of the mortgage. Second, whether there has indeed been nonpayment and a default as a result. The third defense goes to the lender’s right to accelerate under the factual conditions. In essence, the borrower is either saying there is no mortgage, there is no default, or if there is a default, that the mortgagee has no right to accelerate the debt and seek foreclosure.

Lack of consideration, fraud, duress, illegality and the statute of limitations are considered complete defenses. Similarly, payment, cancellation, release, accord and satisfaction, novation, usury and other contract defenses may be possible as to attacking either the existence of the mortgage or the liability of the borrower. Late payments consistently allowed can later become claims of default with the prospect of remortgaging the property if a higher interest rate is in sight. The Florida courts in a series of cases have characterized such faults as technical breaches of the mortgage.

A borrower can remain personally liable for any unpaid debt if a legal problem is ignored. It is therefore critically important that a borrower consult with a Florida foreclosure defense attorney.

Reverse Mortgage Foreclosures

Reverse mortgages have become popular in recent decades. The only reverse mortgage that is insured by the federal government is a home equity conversion mortgage. The Federal Housing Administration insures these entities against losses on the loans and charges borrowers premiums to help cover the potential cost of insurance claims. FHA insured reverse mortgages allow somebody who is at least 62 years old to convert the equity in their homes into a monthly stream of revenue or a line of credit. The borrower is required by law to receive adequate counseling to make sure they appreciate how the program works and any alternative financial options. These types of loans do not need to be repaid until the borrower moves, sells, or dies. All federally insured reverse mortgages are nonrecourse loans. This means when the loan is due and payable, if the loan amount exceeds the value of the property, the borrow or their heirs will owe no more than the value of the property. Moreover, reverse mortgages end when a borrower repays or refinances the loan or when the loan becomes due and payable because the borrower died, moved, or defaulted. Defaults occur when borrowers do not meet mortgage conditions such as paying property charges such as property taxes and homeowners insurance or meeting the occupancy requirements. These borrowers risk foreclosure and loss of their homes if they cannot satisfy the debt or correct the condition that resulted in the default. If a borrower falls behind on property charges, servicers must generally temporarily advance property charges on a borrower's behalf commonly referred to as servicer advances. However, servicers may initiate foreclosure proceedings if the borrower does not catch up. The money produced by a reverse mortgage can be used for any reason the borrower wishes. Because repayment of the loan is forestalled, the borrower can use funds to pay off old debts, to meet financial emergencies and long-term health care or make home improvements. Also, income could increase and cash reserves for future needs could be available. Reverse mortgage foreclosures are becoming more common as our population continues to age. Speak to a competent foreclosure defense attorney about your particular case.

Finally, a word of caution about real property sales at judicial auction. Generally, the doctrine of caveat emptor or “buyer beware” places the duty to examine and judge the value and condition of the real estate solely on the purchaser and protects the vendor from liability for any defects. This doctrine applies to mortgage foreclosure sales under a decree of court. The purchaser at a foreclosure sale occupies the place of the mortgagor with respect to the rights of any prior encumbrancers.

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