It’s being called the Fairness in Foreclosures Act of 2011, although it’s proceeding through the United States House of Representatives as House Resolution 3566, and it’s a big deal to a lot of homeowners in trouble all across the country. If this bill becomes federal law, there will be a limit of ONE YEAR on any deficiency judgment (unless the state law has an even shorter time period) and some even bigger changes for some American homeowners.
In Florida, deficiency judgments are pursued against Florida homeowners who have defaulted on their home loan and have notes with balances that aren’t paid off by the proceeds of either a short sale or from a foreclosure sale. Banks have several years to collect on those deficiency judgments – if this bill passes, they’ll have their window of opportunity drastically cut back. And in some instances, they will be barred. For more on Florida deficiency judgments, read our earlier discussions on the issue.
The federal law, if it becomes law, will supercede Florida legislation and control what happens here. According to the proposed Fairness in Foreclosures Act’s language:
(a) Requirement- An action for a deficiency judgment arising from an obligation under a residential mortgage may be brought only during whichever of the following periods terminates earlier:
(1) The 12-month period that begins upon the date of the foreclosure sale for the residential property securing the obligation under the mortgage.
(2) Such period as may be provided under the applicable State law for bringing an action for such a deficiency judgment.
(b) Satisfaction of Mortgage Obligation- In the case of any foreclosure on a residential mortgage, if no action for a deficiency judgment arising from the obligation under the mortgage is brought during the period provided in subsection (a), the proceeds of any foreclosure sale conducted with respect to the residential property securing repayment of the obligation owed under the mortgage, regardless of amount, shall be deemed to be in full satisfaction of the obligation under the mortgage and no action to recover a deficiency in such amount may be brought after the expiration of such period.
The Proposed Fairness in Foreclosures Act of 2011 Is Designed to Help American Homeowners
The Fairness in Foreclosures Act is designed to help Americans who own single-family dwellings (it doesn’t impact people who own commercial properties or apartment complexes, things like that). It is also written to target low-income homeowners.
As for who is included in the bill’s proposed “low income” category, one must look to section 3(b) of the United States Housing Act of 1937 (42 U.S.C. 1437a(b)) where there’s no clear bright line to figure out who fits into that definition but instead a description that these are ” … families whose incomes do not exceed 80 per centum of the median income for the area, as determined by the Secretary with adjustments for smaller and larger families, except that the Secretary may establish income ceilings higher or lower than 80 per centum of the median for the area …..”
Are You Technically One of the American Homeowners Who Will Benefit Most from the New Act? Maybe.
Bottom line, two households with the same income in different parts of the country might not both meet the definition of “low income,” because by definition the amount is compared with what other folk in the community are making. You need to gather lots of information (or contact your local attorney) to figure out if you fit into the guidelines for your area.
Especially Important for Low Income Families Because It Really Does Help Them
Here’s the big deal. This proposed law also does important things like barring a deficiency judgment from being reported to credit agencies for low income families. Again, read the language of the proposed bill itself:
(b) Low-Income Mortgagors- In the case of any residential mortgage under which the mortgagor is a member of a low-income family, the following shall apply:
(1) PROHIBITION ON ACTION- No action may be brought for a deficiency judgment arising from the obligation under such residential mortgage.
(2) PROHIBITION ON REPORTING DEFICIENCY TO CREDIT AGENCIES- A deficiency in recovery, from a foreclosure sale for the property securing repayment of the obligation due under the mortgage, of the full amount of the obligation may not be reported to any consumer reporting agency (as such term is defined in section 603 of the Fair Credit Reporting Act (15 U.S.C. 1681a)) or disclosed to any person other than the mortgagor or a personal representative of the mortgagor, unless such disclosure is otherwise required by law.
A determination of whether a family is a low-income family for purposes of this subsection shall be based on the income of the family as of the date of the foreclosure sale or any other date during either of the 30-day periods beginning and ending on the date of such sale, and shall be based upon information obtained from the mortgagor during the foreclosure process.
Remember, This Isn’t Federal Law – Yet.
This is not yet law – it’s just a proposal that is being considered by the House of Representatives.
If you have questions about the proposed law or about current deficiency judgment laws here in Florida, please feel free to contact Larry Tolchinsky, an experienced foreclosure defense attorney. You can reach him at (954) 458-8655.