Homeownership Preservation Foundation to homeowners facing foreclosure: “Be Patient”

Josh Fuhrman, a representative of the Homeownership Preservation Foundation (you know, the lender-funded and controlled organization that runs the national “Hope Hotline,”that everyone says to call), appeared at a packed townhall meeting on October 5, 2009 about the foreclosure crisis at the Center for Changing Lives in South Minneapolis, and said this in response to the slow moving pace of the industry to modify loans under the HAMP program created in March:

“People need to be patient, because [the federal program] is new. It is not a quick-fix plan.”

Minnesota Spokesman-Recorder, October 14, 2009, article here.

Mr. Fuhrman is nobody of importance – just the Director of Counseling for the organization. Well, we see where his sympathies lie. See HPF’s website here; article explaining that the Hope Hotline was created to save lender’s money here; HPF’s funding and management here.

The Minnesota article states that only 12 percent of those who qualify for relief have been approved for loan modifications thus far. So does Mr. Fuhrman feel that the other 88 percent should just sit tight while lenders foreclose on their homes? Seems very fair. Lenders have time to process a foreclosure, but not a modification?

Meanwhile Congressman Keith Ellision thinks this is unacceptable, and he wants a moratorium, saying, “[t]his foreclosure crisis is part of a larger assault on middle-class and working-class people.” Undoubtedly, the Homeownership Preservation Foundation would disagree. Rather than push to preserve homeownership, they want homeowners to empathize with the plight of the financial industry. Seems very reasonable — if you are a lender.

It appears that while the industry sends notices about the HAMP program to borrowers, and demands documentation, statements of hardship, and agreements signed and returned, they are continuing the foreclosure process. If the HAMP department happens to modify the loan in time, then the homeowner is fine, otherwise the foreclosure occurs.

This strategy of papering borrowers and demanding documentation leads to another bonus for lenders: homeowners send in their paperwork and thus think their home is, at least temporarily, safe from foreclosure. While they are lulled into thinking that they are safe, they do not seek other remedies, such as bankruptcy or affirmative suits for illegal predatory lending practices or servicer abuse.

After all, under both federal guidelines and a common sense of fairness, lenders are not supposed to proceed to foreclosure while a loan is being considered for modification under HAMP. Nonetheless, the lenders just put a small number of employees in the HAMP department and modify some loans, while the foreclosure folks go full steam ahead.

Josh Fuhrman at the Homeownership Preservation Foundation has the luxury of patience, but more often than not, borrowers seeking modifications under HAMP don’t. New or not, HAMP’s failure to reach even a modest number of borrowers is an outrage, and Mr. Fuhrman and his organization should quit covering for the industry.

Prominent Foreclosure Prevention Guides Hide, Deceive and Scare Borrowers About Bankruptcy

“We don’t want to mention bankruptcy [in a foreclosure prevention guide] because it is so detrimental to borrowers.”

Fannie Mae representative, Texas Foreclosure Prevention Task Force meeting, September 9, 2009.

Isn’t bankruptcy one of the very few real tools borrowers have to prevent a foreclosure and force a lender to accept a payment plan for the arrearages?  Yeah, pretty sure.  Lenders hate when borrowers file for bankruptcy because it transforms borrowers from beggars, hoping to work out a deal, to debtors with rights, and it provides the supervision of a judge who is ready to enforce those rights (good example here)

So it turns out that the comment made in a state task force meeting quoted above is just the tip of the iceberg.  Lenders are perfectly willing to do anything it takes to prevent borrowers from knowing their rights, including deceiving the public, while many others are at least knowing accomplices.  Omitting the bankruptcy option from any conversation on borrower’s rights is not just an oversight; it is intentional — and it is wrong.

Not one of these guides list bankruptcy even as an option for borrowers (click on agency for its guide):

  • HUD (and again here).
  • NeighborWorks (NeighborWorks is supposed to be looking after borrowers but issues like this keep surfacing, another example here.)
  • FDIC (Federal Deposit Insurance Corporation) has a brand new Foreclosure Prevention Tool Kit (updated 9/16/2009).
  • Homeownerhship Preservation Foundation (The Homeownership Preservation Foundation runs the Hope Hotline, article here, but it is close to if not actually a lender front, article here, so this should not be a big surprise.)
  • Hope Now Alliance (an alliance of lenders mainly, article describing them more here).
  • The Federal Reserve System (the central bank of the US).  Some wonder if they are a little too friendly with the banks — President Obama has proposed a new agency to oversee consumer lending practices called the Consumer Financial Protection Agency, article here.  Of course some worry the new agency will just be another toothless tiger if it is allowed to exist at all, like OSHA, Consumer Product Safety Commission, etc.
  • Fannie Mae (and again here), and its sister lender Freddie Mac (these are Government Sponsored Enterprises, or GSEs, currently bailed out and run by the US government).
  • Foreclosure Prevention Resource Center (The Center is “powered” by the Mortgage Bankers Association but you would not know it by the name at the top of the site or the link “www.homeloanlearningcenter.com”).  The only time the Center mentions bankruptcy is in this sentence: “The primary causes of delinquency, foreclosure and bankruptcy are not poor planning, but illness, loss of employment or marital problems.”
  • National Black Church Initiative (they made the mistake of partnering with Fannie Mae and the Mortgage Bankers Association).  This guide does mention bankruptcy actually – so you know what to do when your lender files bankruptcy.

Some others I saw in passing that also failed to even mention bankruptcy were in Pennsylvania, Ohio, Nevada, Washington State Dept of Financial Institutions, Texas Department of Savings & Mortgage Lending (referencing guide by Texas A&M Real Estate Center and others already mentioned above), Georgia, Virginia, New York City Comptroller, Miami-Dade County Consumer Services Department, Fox News.

One in California references a guide here (by a legal aid organization) that mentions bankruptcy without slamming it, although it certainly does not explore it in any detail — but at least it does not hide it.  I have not seen all the guides from all the federal, state and local entities that have one, but the best guide I saw that describes bankruptcy appropriately is one by Arizona (27-28).

Some Mention Bankruptcy, Negatively

Effect of a bankruptcy on your credit record: Severe.

Nevada Department of Business and Industry

Of course a foreclosure is not so great on your credit record either.

Bankruptcy: Filing for bankruptcy will temporarily halt the foreclosure process and may force the mortgage lender to accept a more borrower-friendly repayment plan.  But a bankruptcy should only be considered as an absolute last resort. A bankruptcy will remain on your credit report for ten years.

State of New York Banking Department (emphasis added).

I like how it says bankruptcy is a temporary fix, like bankruptcy will only prolong the inevitable.  Here is another example:

Bankruptcy: Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, and can make it difficult to get credit, buy another home, get life insurance, or sometimes, get a job.

Federal Trade Commission – Facts for Consumers – August 09 (emphasis added).

So filing bankruptcy will probably just ruin your life according the the Federal Trade Commission (no credit, no home, no job and your children will be homeless when you die).

Others Just Discuss Bankruptcy as a Scam

Bankruptcy scams. You may have heard that filing bankruptcy will stop a foreclosure. This is true — but only temporarily. Filing bankruptcy brings an “automatic stay” into effect that stops any collection and foreclosure while the bankruptcy court administers the case. Eventually, you must start paying your mortgage lender, or the lender will be able to foreclose. Bankruptcy is rarely, if ever, a permanent solution to prevent foreclosure. In addition, bankruptcy will negatively impact your credit score and will remain on your credit report for 10 years.

US Comptroller of the Currency, Consumer Tips for Avoiding Mortgage Modification Scams and Foreclosure Rescue Scams, May 16, 2008, Consumer Advisory CA 2008-1

Not sure where the Comptroller gets its “stats” from — “rarely, if ever” might be an exaggeration.  I also wonder what the statistics are for borrowers who tell lenders their life story and beg for a loan modification.  The phrase “rarely, if ever” also comes to mind (article here), but I sure would mention the loan modification option in a foreclosure prevention guide.  Why does the Comptroller mention one, and not the other?  Surely the US Department of Justice, the lawyers of the US government, would not let lenders’ preferences sway the legal advice it gives the American people.

“Bankruptcy foreclosure scams” target people whose home mortgages are in trouble. Scam operators advertise over the Internet and in local publications, distribute flyers, or contact people whose homes are listed in the foreclosure notices. Sometimes they direct their appeals to specific religious or ethnic groups.  … A bankruptcy filing often stops a home foreclosure, but only temporarily. If a bankruptcy is filed in your name but you don’t participate in the case, the judge will dismiss the case and the foreclosure proceedings will continue. If this happens, you will lose the money you paid to the scam operator — AND YOU COULD LOSE YOUR HOME. You will also have a bankruptcy listed on your credit record for years afterward.

United States Department of Justice

Some Imply Bankruptcy Is Not Legitimate

Bankruptcy

[A] bankruptcy filing often stops a home foreclosure, but only temporarily. What’s more, the bankruptcy process is complicated, expensive, and unforgiving. For example, if you fail to attend the first meeting with the creditors, the bankruptcy judge will dismiss the case and the foreclosure proceedings will continue.

If this happens, you could lose the money you paid to the scam artist as well as your home. Worse yet, a bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job.

Where to Find Legitimate Help

If you’re having trouble paying your mortgage or you have gotten a foreclosure notice, contact your lender immediately. …

Federal Trade Commission – Facts for Consumers – February 2008 (emphasis added).

Lenders Are Controlling the Conversation at all Levels

The message of these guides are amazingly consistent across all levels (local, state and federal governments, GSEs, local task forces, and even nonprofits allegedly concerned about borrowers).  With few exceptions, these guides omit, mislead, or attempt to frighten everyone from filing a bankruptcy, and they certainly do not provide much if anything about a borrower’s rights.  There is rarely if ever a mention that an attorney or legal aid organization should be consulted (I found exceptions by Freddie Mac here, and in the guide of the National Black Church Initiative here at page 9 where it suggests a borrower get a lawyer through a university [their clinical programs typically take a handful of cases a year] or the state attorney general [who cannot represent a borrower]).

The guides also typically encourage borrowers to see a counselor.  Counselors trained by whom?  I have witnessed trainings done by NeighborWorks first hand and much was left to be desired (article here).  And remember when NeighborWorks was given millions in federal money to funnel to counseling agencies of its choosing (See list of recent grants here; US House Financial Services Committee guide.)?  Why might the lending industry consent to funding NeighborWorks? — maybe they know the advice borrowers will get is consistent with their message, their agenda.  It is entirely consistent that a NeighborWorks representative suggested that their counselors be paid by the lenders directly (article).  After all, the counselors are doing the lenders’ dirty work. But why would the lenders want to pay them, when the government will?  I’m guessing that they would rather keep their bailout money for raises, not counseling when they have already secured the message of the counseling.

Of course bankruptcy is not appropriate in every case, but it could be especially helpful when a lender will not agree to a reasonable payment plan.  Having it out there as a possible tool for borrowers encourages lenders to make reasonable payment plans with other borrowers.  Bankruptcy will adversely affect a credit report, but so will a foreclosure.  There are various requirements needed to file and complete a bankruptcy, such as pre-filing counseling (of course these requirements were solely pushed by the lender lobby), but there are many rules and procedures that must be followed under HAMP (the government’s loan modification program) as well.

The Real Message of these Guides

Bankruptcy is merely a litmus test.  If the lenders can keep this option out of hundreds of guides and websites at all levels, imagine what else they have influenced.  Rather than provide borrowers with unbiased, complete advice, the options given to borrowers in these guides and articles are more accurately described as:

  1. Pay up soon, sell everything you have, pay the lender before you pay anything else (presumably even before food or medicine as implied here), and tell the lender everything they want to know about you and your situation.
  2. Beg the lender to lower the payments (a counselor can help you with that).  If you are lucky, a lender might cut you a break.
  3. If all else fails, get the hell out of the house, and feel lucky you stayed as long as you did.
  4. Don’t get help from anyone except a counselor that we approve of; the others are scam artists.

The financial industry will eventually be discovered as no better than big tobacco.  If the tobacco industry can fall, so can these folks.

Kansas Supreme Court: MERS is a Straw Man with No Enforceable Rights

The Supreme Court of Kansas recently referenced a Bankruptcy Court from Massachusetts that said:

“When the role of a servicing agent [MERS] acting on behalf of a mortgagee is thrown into the mix, it is no wonder that it is often difficult for unsophisticated borrowers to be certain of the identity of their lenders and mortgagees.” In re Schwartz, 366 B.R. 265, 266 (Bankr. D. Mass. 2007).

Then cited the Supreme Court of New York (Kings County) that said:

“[T]he practices of the various MERS members, including both [the original lender] and [the mortgage purchaser], in obscuring from the public the actual ownership of a mortgage, thereby creating the opportunity for substantial abuses and prejudice to mortgagors . . . , should not be permitted to insulate [the mortgage purchaser] from the consequences of its actions in accepting a mortgage from [the original lender] that was already the subject of litigation in which [the original lender] erroneously represented that it had authority to act as mortgagee.” Johnson, 2008 WL 4182397, at *4, 873 N.Y.S.2d 234 (2008).

When a court references these slams you know that the House of Cards that is MERS (Mortgage Electronic Registration Systems) is gonna take a hit.

TECHNICAL STUFF: Seems that when a first lienholder was foreclosing it sent notice to the originator of the second lien even though MERS was shown to be mortgagee on the second lien (as nominee of the lender).  Of course, the second lien originator had previously transferred its interest to a new lender, and the new lender did not get notice of the foreclosure and was wiped out by the foreclosure by the first lienholder.  The question was whether MERS was entitled to notice of the foreclosure.  The answer was no. (See another description of the case here.)

The relationship that MERS has to (to holder of a loan) is more akin to that of a straw man than to a party possessing all the rights given a buyer. A mortgagee and a lender have intertwined rights that defy a clear separation of interests, especially when such a purported separation relies on ambiguous contractual language. The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is “[o]ne to whom property is mortgaged: the mortgage creditor, or lender.” Black’s Law Dictionary 1034 (8th ed. 2004). By statute, assignment of the mortgage carries with it the assignment of the debt. K.S.A. 58-2323. Although MERS asserts that, under some situations, the mortgage document purports to give it the same rights as the lender, the document consistently refers only to rights of the lender, including rights to receive notice of litigation, to collect payments, and to enforce the debt obligation. The document consistently limits MERS to acting “solely” as the nominee of the lender.

Landmark Nat’l Bank v. Kesler, 2009 Kan. LEXIS 834 (Aug 28, 2009), here.

The Kansas Court went on:

What stake in the outcome of an independent action for foreclosure could MERS have? It did not lend the money to Kesler or to anyone else involved in this case. Neither Kesler nor anyone else involved in the case was required by statute or contract to pay money to MERS on the mortgage. [citation omitted](“MERS is not an economic ‘beneficiary’ under the Deed of Trust. It is owed and will collect no money from Debtors under the Note, nor will it realize the value of the Property through foreclosure of the Deed of Trust in the event the Note is not paid.”). If MERS is only the mortgagee, without ownership of the mortgage instrument, it does not have an enforceable right.

Landmark Nat’l Bank v. Kesler, 2009 Kan. LEXIS 834 (Aug 28, 2009), here.

MERS is a straw man to the Kansas high court.  MERS does not own anything, and therefore does not have an enforceable right.  It is not entitled to notice says the court.

While straw man is appropriate, my daughter would suggest MERS is more like Humpty Dumpty that just had yet another great fall.  I sure hope all the lender lobbyists and PAC money cannot put Humpty back together again.  The MERS ”helpful to borrowers and lenders alike” rhetoric never met up with reality.

Fannie, Freddie, Task Forces Ignore New Tenant Law

It is no surprise that private lenders and their lawyers are attempting to push tenants out of a property after they foreclose so they will not have to comply with the federal act passed in May 2009 (article here), however, it is a little surprising that the bailed out Fannie Mae and Freddie Mac, the GSEs (government sponsored, and currently run, enterprises) that are two of the largest lenders in the country, are misleading tenants too.  But they are not unlike most every other task force or other state effort out there we checked on.

Fannie Mae is not merely silent; their site misinforms:

A renter who wants to stay in a home that has been foreclosed can now sign a month-to-month lease if the property is owned by Fannie Mae.

Fannie Mae website “Support for Renters” here.

Of  course the new law that has been in place almost four months requires Fannie Mae to honor the lease in place, or give the tenants at least 90 days notice if the lease expired.  Mandating that tenants sign new month-to-month leases for a new rent amount totally violates the law (and Fannie Mae only allows this in certain circumstances they say).

I was at a foreclosure task force meeting yesterday and one of the spokepersons for Freddie Mac mentioned their new renter program for both homeowners and tenants.  I was curious about a “program” for tenants given the new law.  Sure enough, same kinda thing on their site:

Is my previous lease still valid?

No. Freddie Mac will enter into a new lease with all occupants. If your prior lease was a Section 8 lease, you will continue to pay the same monthly rent that you paid under your Section 8 lease.

“2009 Freddie Mac Rental Initiative FAQs” here.

Fannie estimates that 20 percent of all properties facing foreclosure are occupied by renters.  I wonder have many of these are misled by the GSEs?  I wonder how many just leave, take the loss, and suffer hardship to avoid dealing with a GSE, living on a month-to-month lease?  I wonder how many fear they will not qualify for these “programs” and think they will just be evicted?

What about all these other foreclosure task forces scattered throughout the country?  No better.

Ohio and Nevada have similar bad information as the GSEs on their sites.  But four months is just not enough time to make such a change obviously.  If the GSEs cannot get it right just yet, why should a state task force?

Another method out there is just to keep it a secret like the task forces in Texas, Washington, Georgia, Pennsylvania, Colorado, Hawaii, and Wisconsin.  After all, this issue has nothing to do with preventing foreclosures and that is all these states care about.  Who cares about tenants who may not have moving expenses, or security deposits saved?  Who cares that they may have to move to a new school district in the middle of a year, or find a different bus line to get to work, etc.?  I mean really, who cares about these families?

Michigan does not mention the new law on their foreclosure site, and their tenant site is wrong too here.  Florida’s various sites miss it as well: Lee County, Collier County, Office of Financial Regulation, and the Florida Housing Finance Corporation.

Virginia is good here, but they reference Fannie Mae’s site with the misinformation, and then on the same page as the new law they say:

  • If you have to move before your lease expires, you may be able to sue your landlord for monetary damages. However, this can be costly, time consuming, and it may be difficult to collect money from a landlord who is in foreclosure.
  • If the bank or new owners contact you directly, negotiate with them for a move out date that suits both of your needs.
  • The new owner may also offer you “cash for keys” if you leave the property voluntarily without going to court.
  • Do not pay rent to the new owner unless you have reached a written agreement concerning your right to remain in the property.

Virginia Foreclosure Prevention Task Force “Renter’s Rights” here.  (The advice not to pay rent is especially helpful.)

Same with Arizona.  They are good  in mentioning the new law here, but on same page and another page on their site it says tenants are out (“If a landlord rents out a home or other property and is facing foreclosure, the tenant may not be allowed to stay on the property. Also neither the landlord nor the bank is legally obligated to let the tenant know about the foreclosure. Most of the time, the renter is told about the foreclosure when the party is being told to leave the property.”) Arizona Foreclosure Prevention Task Force “Renters Information” here.  These two states knew about the change in the law, felt it important enough to mention, but not really enough to make sure things were done right.

California’s (here) is the only one I can find that did it right (but I have not checked every state, nor every site in every state).  The best source of information about the new law I have found is the Renters in Foreclosure Toolkit on the website of the National Low Income Housing Coalition.

Maybe somebody could suggest a change.  I did that for NeighborWorks.  The renter area of their site used to be confused on the issue at best (previous version of their site here).  After several emails and help from an insider, instead of fixing it, NeighborWorks simply removed any reference to it from the renter area of their site (here) which might be where a renter would go for information.  But after I searched awhile I found it in the “Foreclosure Solutions” part of their site here.  See, taking the diplomatic approach worked wonders.  It makes little sense to polarize folks since we are all in this together helping families.

Just because these websites are wrong and have been for months getting collectively thousands of hits a day is no big deal.  I am sure all the lenders, including the GSEs, will look out for these families and have their law firms send them notices to vacate that make their rights to continue to rent are crystal clear (it is working really well so far, article).

As these links above hopefully go bad or are changed I will try to take note and update the post.

Texas Foreclosure Process – Varies by the Type of Loan

Although various sources show Texas to be a “nonjudicial” foreclosure state (e.g., here), or generalize about the length of time required to foreclose (e.g., here), Texas has three different processes that are used to foreclose on a homestead, depending on the type of debt involved.

I. Original Purchase Money or Refinance – Nonjudicial

There is the standard original purchase loan (loan used to purchase the home), or the refinance of the original purchase loan, both of which can be foreclosed without any judicial involvement–assuming there is a valid deed of trust.  A deed of trust is, of course, not a deed or a trust; it is a document that allows the creditor (who lent the money to purchase a home, or refinance a debt used to purchase a home), the right to foreclose without obtaining a court order. A chart that shows this process is here.

Texas has a two-step process in order to foreclose on these debts: 1) a first notice of at least 20 days notifying the borrower of the default and giving him a right to cure; and 2) a second notice of the sale giving the borrower and the public at least 21 days notice of the sale (and the sale can only be on the first Tuesday of a month). Typically, the lender hires attorneys to perform the foreclosure, including sending the notices (which must be sent by certified mail).  Texas law does not require that the borrower actually receive the notices.  The sale can occur as soon as 10 am on the first Tuesday of the month.  At the sale, a lender’s attorney is often designated as a trustee and puts the property up for sale to the highest bidder.  Typically, the trustee accepts a bid from the lender for the outstanding balance of the loan and the lender is the winning bidder at the sale.

While it is possible that a lender will bid less than the loan amount owed (and create the chance for a deficiency), that is not typical.  [Some reasons include the fact that a borrower has defenses in a deficiency situation, and even if the lender wins, it is difficult to collect a deficiency judgment from an indigent borrower in Texas as compared to other states (for example, in Texas a home loan creditor cannot garnish current wages)].  Thus, there is less need to worry if the lender will not agree to a short sale (in which a lender agrees to lower the amount owed to the amount the homeowner can sell the property for, and then avoid any chance of a lender pursuing the homeowner for a deficiency judgment).

There is no right of redemption upon a foreclosure of these loans. This means that the former homeowner does NOT have any absolute right to buy the property back from the high bidder after the foreclosure sale (but the former homeowner can ask the high bidder if it will agree to let her buy the property back), and there are few defenses to an eviction case brought by the new owner against the former homeowner (Note: Tenants that were renting the property from a landlord who was foreclosed on are still entitled to continue their lease, and if the lease is expired they still get a 90 day notice to vacate; article here). Review the chart here for more details, and Chapter 51 of the Texas Property Code.

Unless a lender voluntarily agrees to stop a foreclosure, a temporary restraining order must be entered by a judge or the filing of a bankruptcy must be accomplished prior to a sale.

II. Home Equity Loans and Property Tax Loans – Hybrid (nonjudicial and judicial combined)

For loans that provide a borrower cash, that consolidate debts, that refinance this kind of debt, or that are used to pay property taxes, the lender must obtain court approval to sell the home at a foreclosure sale.  After the first notice is sent, and the homeowner has not cured the default, the lender must apply to a court (district usually, but county court in some jurisdictions) to request an order to foreclose.  Usually, the fastest way that a lender can do this, is by filing an application for expedited foreclosure. The application is filed and a copy mailed by certified mail to the borrower (not served by a sheriff or constable).  The homeowner is the respondent, and has 38 days to file a response to the application.  If the respondent files a response in writing, the court will set the matter for a hearing. No evidence is usually heard from the witness stand; instead, the court reviews the documents on file to see if the applicant is entitled to foreclose.  If so, the court will authorize the foreclosure to occur and the procedure will proceed just as in nonjudicial cases (second notice will be sent, giving borrower and the public at least 21 days notice that a sale will occur).  See Rules 735-736 of the Texas Rules of Civil Procedure for more information here.

In order to stop an application from being granted, a suit challenging the foreclosure often needs to be filed before the order is signed (a temporary restraining order is not required).  Even if a court grants the application, however, a borrower may still be able to prevent the foreclosure by obtaining a temporary restraining order or filing for bankruptcy before the first Tuesday when the home is scheduled to be sold.

Tax lenders have the same process, but it should be noted that a tax lender can foreclose only if the government can foreclose (for example, if the homeowner elects to defer as explained below, then a tax lender cannot foreclose either).

There is no right to redeem after a foreclosure of a home equity loan, but the lender cannot sue the homeowner for the deficiency if the property is sold for less than the amount owed.

III. Property Taxes Owed to the Government – Judicial

The government must file a traditional lawsuit (no application for expedited foreclosure) in order to have a home sold to pay for property taxes owed.  Lenders can always use this method as well; however, this method does take longer in most cases.  At the conclusion of a case, and if the homeowner loses, the judge orders the property sold at auction which is conducted by a sheriff or constable on the first Tuesday of a month.

Even after suit is filed, most taxing entities will enter into payment agreements with homeowners in certain circumstances.  If a homeowner is 65 years of age or older, or disabled (defined as entitled to receive SSI disability payments), the homeowner may request a deferral — postponement.  (If the homeowner is elderly or disabled, she may also obtain an extra exemption which lowers the tax bill, but it alone does NOT stop a tax foreclosure.  Only a deferral affidavit stops the foreclosure activity).  The deferral can be obtained merely by filing an affidavit with the appropriate appraisal district. Form here.

If a tax collection suit has been filed already, the affidavit must be sent to more officials by a certain time period in order to stop the sale (e.g., attorneys for the taxing entities, sheriff or constable that conducts the sale, appraisal district).  The deferral only works for the government (and for tax lenders).  If the homeowner still owes money for the purchase of the home or a home equity loan, then a deferral affidavit will not stop a foreclosure for nonpayment of the taxes.  The lender almost always has language in the documents that requires the taxes to be kept current; so the government may not foreclose for a deferral, but some other lender might.  A homeowner can still file bankruptcy as well to stop a foreclosure for nonpayment of property taxes.

There is a right to redeem after the government forecloses for nonpayment of taxes — that is the homeowner has the right to buy the property back from the high bidder at the foreclosure sale.  In general, the person will have to pay an extra amount (more than the amount paid by the bidder), and for homesteads that were lost to foreclosure the person has two years to buy it back.  In general, there is a 25 percent premium required to be paid in the first year, and a 50 percent premium in the second year (you should check the law on this issue depending on the exact type of property involved because mixed uses have different formulas).  The amount required to be paid back will also grow over the two year period because the person will have to pay for any amounts used to maintain the property.

Although a deficiency judgment is possible, often the property is sold for more than the tax amount owed creating excess proceeds.  The excess is deposited with the registry of the court and a homeowner must apply to the court to obtain it (and after time passes it is forfeited to the state).