Anyone facing foreclosure understands the concern about home equity. Although, in general, homeowners retain their equity even after a foreclosure, there are limitations and nuances to this fact. The entire process can be extremely complicated. The best thing you can do if you’re facing foreclosure is to work with an experienced legal team that can protect your financial interests and property rights.
At Badgley Law Group, we represent clients in Orlando and throughout central Florida in all types of foreclosure and equity issues, as well as helping our clients find bankruptcy debt relief solutions.
In the event a homeowner defaults on their mortgage and foreclosure proceedings begin, the equity home remains with the homeowner. The foreclosure process however can erode the equity. Here are several points about home equity:
Equity is the difference between the current market value of your home and the amount you owe on it. It is the portion of your home’s value that you own. For example, if you purchased a $250,000 home with a 20 percent down payment of $50,000 and a mortgage loan of $150,000, the equity in your home is $50,000.
Foreclosure is the legal steps the banks or the mortgage holder will take after a home loan goes into default. The time period between the last payment and when the default is declared, and foreclosure begins can vary. However, if a homeowner misses several payments, the lender will place the loan in default before starting foreclosure.
If the homeowner can’t secure new financing or sell the home on their own, the lender has the right to sell the home at auction or for whatever price they choose. If the home doesn’t sell at auction, the lender can sell the home through a real estate agent.
The issue for the (former) homeowner then is the equity of the home’s value. If the house is sold and there is money left over after the loan and all fees and penalties are paid, that is equity and that belongs to the homeowner.
The equity is being lost before foreclosure even starts. Late payment penalties from the missed payments will be factored in for example. So, if a homeowner misses six payments before the default, six late payment fees will be added to the total loan, and in turn the equity will be reduced.
The lender can also charge fees to process those late payments; in addition, the default declaration, the foreclosure proceedings and the expenses of the sale will against the equity. These fees can add up to thousands of dollars and will be added.
Once a home goes into foreclosure, the lender has the home appraised for an auction sale. Many times, the lender will take an offer of 90% of the home’s appraised value. Lenders don’t want to own a home. Lenders will then typically accept low home appraisal values giving the home a better chance to sell at auction and not have to be listed with an agent. The reduced appraisal value means a lower sales price and means a lower amount of money left over after the loan and fees are paid.
According to Florida Statute §702.01, all mortgages are foreclosed in equity. That means that in a mortgage foreclosure action, the court severs, for separate trial, all counterclaims against the foreclosing lender. The foreclosure claim then, if tried, is tried in court without a jury.
Talk with our lawyers right away to get the help you need. Call us at 407-781-0420 or email us to schedule a consultation.