Strategic Foreclosure 101 – Walking Away From Your Home

Many Americans are wondering how to deal with an underwater mortgage in these tough economic times.  Florida has been hit harder by the housing crisis than any other state in the nation. While some can afford to continue making payments on their home, many across the state have been pushed into foreclosure as home values have decreased anywhere from 15 to 55 percent or more.

Aside from a loan modification, we have all heard the terms foreclosure, short-sale, and deed-in-lieu of foreclosure. Each of these terms spells trouble for the homeowner – loss of home, reduced credit score, and negative social stigma. Although lenders in February filed fewer foreclosure actions in Florida compared to a year earlier, a new strategy is on the horizon, an idea coined “strategic foreclosure.”

If you purchased your home at the peak of the real estate market from 2004 to 2006, your value has substantially dropped. Although irrelevant to some borrowers as they can afford the payment and plan on residing in their home for a decade or more, others have simply stopped paying in the hope of forcing a short-sale or reduction in principal.

Should you walk away from your mortgage even if you can afford to pay? Millions of Americans are asking themselves that same question. Some borrowers feel they have a legal, moral, and ethical obligation to make payments notwithstanding a substantial drop in value. With almost half of the residential mortgages in Florida underwater, a growing number of individuals are contemplating walking away from the place they call home.

If you can resolve yourself to possible litigation and a lower credit score for several years, walking away may be a smart business decision. Right now, only a small percentage of borrowers are contemplating this technique. A recent study, though, found that approximately 32 percent of homeowners nationwide would consider walking away from their mortgage if the value of their home continues to decrease.

While “strategic foreclosure” makes perfect economic sense, many homeowners do not choose this course of action out of shame, guilt and fear. Underwater homeowners continue to stress over their mortgage payments to avoid the consequence of foreclosure and a perceived negative social stigma within the community. This is especially so when a borrower has the financial ability to pay.

Although almost 17.4 million homes nationwide are underwater, one must consider the adverse implications of “strategic foreclosure” before walking away. First, and foremost, is the loss of your home. Have you purchased the home across the street at half the amount of your current mortgage? Do you plan on renting? Are you aware that a “strategic foreclosure” will have the same impact on your credit score as a loan modification, judicial foreclosure, short-sale, or deed-in-lieu of foreclosure? Are you aware that you can be sued for any deficiency balance on your home?

“Borrowers who are underwater on their mortgages would be better off financially if they walked away from their homes,” says Scott Kleiman, a foreclosure defense attorney with Kalis & Kleiman. “They don’t because of their moral and ethical obligation to pay their mortgages.”

Borrowers who had a good credit history before they walk away through “strategic foreclosure” can usually rebuild their good name and reputation within a couple of years. In a recent study commissioned by the global information services company Experian, approximately 588,000 borrowers nationwide simply walked away from their homes in 2008. This is up 128 percent over 2007. From all indications, 2010 will be a banner year as the social stigma of foreclosure and simply walking away from your home will have dissolved amid the mortgage meltdown.

Just like former “Beverly Hills 90210” star Brian Austin Green – who has advanced a “strategic foreclosure” strategy in an effort to short-sale his $2 million Hollywood Hills home – you too can ride the wave of the future.

As a homeowner, you can afford to make your mortgage payments but are underwater to the point of no return. As a borrower, the American dream of owning a home is lost as it will maintain negative equity for a decade or more. “Strategic foreclosure” may be the first step toward a short-sale and walking away from yourhome.

William E. Lewis Jr. & Associates is a solutions based professional consulting firm specializing in the discriminating individual, business or governmental entity. To learn more, tune into “The Credit Report with Bill Lewis,” a daily forum for business and financial news, politics, economic trends, and cutting edge issues on AM 1470 WWNN.

Loan Modification Licensure in Florida – an Industry no Longer Without Regulation

The days of simply opening up shop and starting a loan modification business have come to an end in Florida. Individuals or businesses providing loan modification services must now be licensed as a mortgage broker by the Florida Office of Financial Regulation (OFR) in order to conduct business.

The Florida Legislature recently passed Senate Bill SB 2226. This law makes significant changes to Florida’s mortgage brokerage law — Chapter 494, Florida Statutes — effective Jan. 1, 2010. In particular, the new law specifically covers negotiation of existing loans as being part of the duties of a mortgage broker. Any individual or business attempting to negotiate a loan mortgage modification will now be required to obtain a license through OFR. Additionally, there are new disclosures required in order to perform a loan modification — large type print on contracts and a three day rescission period are among a few of the changes.

The new law also requires “loan originators” to obtain a license. Prior to the amended law, there was a large loophole that allowed salaried employees of a mortgage broker to act as loan originators and still receive compensation for bringing a borrower and lender together. Although this section of the law phases in on October 1, 2010, hundreds of individuals have submitted applications to the OFR to become compliant.

The new law was sparked by hundreds of complaints filed with the state attorney general’s office in Tallahassee. While only 59 complaints were filed in 2008, the number skyrocketed to approximately 3,750 in 2009, according to Florida Attorney General Bill McCollum, who recently appeared on the Credit Report with Bill Lewis on AM 1470 WWNN.

In an effort to combat the rampant increase in foreclosure rescue scams within an industry previously unregulated, General McCollum sued three foreclosure rescue firms — and the attorneys who worked for them — alleging that they charged advance “qualifying payments” as high as $1,299 to perform loan modifications in violation of state law. Filed in Miami-Dade County Circuit Court on December 17, 2009, the suit also claims the company required clients to establish escrow accounts for additional fees and deceived them by implying the money was for legal representation.

After receiving numerous complaints — the majority originating from consumers outside Florida — the attorney general began investigating Kirkland Young LLC in July, 2009. State regulators soon realized that the business was affiliated with ABK Consultants Inc. and Attorney Aid LLC, which were also named in the suit. Although located in Miami-Dade, the businesses solicited customers nationwide. The legal action seeks to shut down the three companies, a $10,000 fine for each violation of state law, as well as restitution for consumers scammed in the process. Although in receivership, Kirkland Young has also been sued by the Federal Trade Commission.

Through Jan. 31, 2010 South Florida ranks fourth in the nation for home loan modifications, with 37,451 under President Barack Obama’s Making Home Affordable Program. Nationwide, 24 percent of the 3.3 million homes with distressed loans have been modified, according to a U.S. Department of the Treasury report. While the new law is not going to eliminate loan modification scams completely, it should make them more difficult. In 2009, the Mortgage Fraud Task Force was handling more than 200 cases of loan modification fraud. In 2008, the South Florida field office of the FBI had the second-highest number of mortgage fraud reports in the country with 5,155 reported instances.

For more information or to file a complaint, visit Attorney General Bill McCollum’s Web site at

William E. Lewis Jr., is a credit repair expert and host of “The Credit Report with Bill Lewis” on AM 1470 WWNN, a daily forum for business and financial news, politics, economic trends, and cutting edge issues.