If you choose to stop paying your mortgage payments the lender will sue for foreclosure and sooner or later, one way or another, the delinquent homeowner will most likely lose the lawsuit and the lender will sell the house at foreclosure sale. I am often asked whether the homeowner should simply “let the house go” or “just turn in the keys”, or whether they should retain an attorney to defend the foreclosure even though the chance of winning is small.I now think in most cases the homeowner should defend the foreclosure suit. I don’t litigate foreclosure cases. I refer clients to other attorneys who practice in real estate or commercial litigation. More and more, people who hire attorneys to defend foreclosures obtain positive results. Here is one example reported to me by the litigation attorney this week.
My clients could not afford any more mortgage payments for a property that was substantially “upside down” in equity. I referred the clients to a real estate litigator. The real estate attorney filed several defenses to the foreclosure complaint and used many legitimate procedural tactics to delay the foreclosure. In most cases, the lender attorney encounter no borrower resistance When they encounter “problem cases” they are often open to a negotiated settlement in order not to spend inordinate amount of time or resources on one property. Lenders do not like to spend good money on bad loans.
In this instance, the homeowner’s attorney saw that the lender was becoming frustrated early in the foreclosure case. The homeowner’s attorney made the following offer: the homeowner would drop defenses to foreclosure; in exchange, the lender would agree not to pursue any deficiency judgment and further stipulate that the property value equaled the loan amount on day of foreclosure sale (therefore, there was not taxable forgiveness of debt). The lender quickly accepted the offer. My former client was able to walk away from his house without fear of deficiency liability and without tax liability for debt forgiveness. His attorneys fees were less than $2,000.
If you are no longer able or willing to pay a mortgage for a property without equity it may be a good idea to retain a competent litigation attorney to guide you through the foreclosure process. There is no advantage to cooperating with the lender or making the lender’s job easy; most likely, the lender did not cooperate with you when you asked them to modify your mortgage loan. The homeowners who defend themselves in foreclosure and make their case a more difficult for the lender often get enough leverage in their case to negotiate a release from liability.