Forced Sale of Homestead with Judgment Lien

Discussion in 'Credit Talk' started by eelb, Mar 12, 2008.

  1. eelb

    eelb Active Member

    This concerns judgement debtors who own their homes outright with no mortgage. In states with either no or relatively small homestead exemptions.

    All the reading I've done on the matter, indicates that judgment creditors rarely force a sale of debtor's property, with which the creditor has filed a lien upon. As I understand it, the costs are too great. I am having a difficult time understanding what makes these costs so prohibitive, that creditors would not proceed with a forced sale more often.

    It seems this would be an option, where the debtor is otherwise judgment proof (many senior citizens) but owns a home outright.
     
  2. flacorps

    flacorps Well-Known Member

    I have just seen an estimate in an article on the housing crisis that it costs $50,000 to do a foreclosure. I don't know where the number comes from ... but let's cut it in half for the sake of argument. These are costs the creditor must "front" in order to recoup both them and the amount of the debt. Meanwhile, the homeowner could fight (which would drive up the costs, potentially beyond what the creditor could recoup), or the homeowner could do a "trash out" of an already-dilapidated home, again causing the creditor additional losses--potentially even municipal or county fines or liens due to the condition of the property (or board up costs, etc.).

    Unless and until there is a lower-cost service for creditors to help them determine how much they will ultimately recover, they will be unwilling to pony up to do foreclosures in many instances where a neutral observer with full knowledge of the situation would find it appropriate to do so.

    In the early 90's in Florida there was a law on the books that allowed for an accelerated foreclosure method. It was frankly unconstitutional and nobody used it.

    Plus I think anybody who started doing this with any sort of success would find themselves with a Simon Legree image no matter how much they spent on public relations, and that means an uncomfortable session testifying before Congress at the very least. And Congress doesn't just whistle dixie ... they write the checks for the prosecutors ... who will feel powerfully pressured to do something, even if they know the cases they bring are B.S.

    Many people are doing hard time over B.S. cases.
     
  3. bizwiz41

    bizwiz41 Well-Known Member

    These kind of tactics are always a "judgement" call. As flacorps stated, a large part is the known of high collection costs versus the risk of unknown collections amount(s).

    Do not overlook the PR factor here, (again as flacorps stated), it is fairly easy to get a stay against eviction from your home, and what business wants to be on the news for throwing Grandma and Grampa on the street?

    In brief, many times the total costs outweigh the potential payoff/benefits. It's pure business decision making.
     
  4. eelb

    eelb Active Member

    Couldn't a creditor hire a local appraiser to determine what the home is worth before proceeding further?
     
  5. flacorps

    flacorps Well-Known Member

    Appraisers have to go inside or their opinion of value is no good. What debtor would let them in?
     
  6. eelb

    eelb Active Member

    True.

    I assume that BK trustees have more power when they take a home in a Ch 7.
    And the use of government money to cover the costs involved.
     
  7. flacorps

    flacorps Well-Known Member

    At that point there is total cooperation on the part of the debtor on account of the federal marshalls...

    And yes, I imagine that the current housing crisis will result in a lot more involuntary bankruptcies.
     
  8. bizwiz41

    bizwiz41 Well-Known Member

    You also have to remember that many of these companies "do not want to be in the real estate business". The arena of forclosure and forced BK is very foreign to many businesses, and they simply do not have all the resources needed to execute these tactics.

    Many businesses feel that their time is better spent doing what the know best to make (read that recover) lost income.
     
  9. Hedwig

    Hedwig Well-Known Member

    That's a very good point, Biz. Many people don't realize all of the costs involved in foreclosing, managing, and selling the property. Many of the major mortgage corporations have either a department or a subsidiary company to handle this. But it IS expensive. It's not just "hey, we got the property, we'll sell tomorrow."

    Besides all the legal costs in doing the foreclosure, they have to manage the property, keep it up (mow grass, clear snow and ice, etc), advertise it to real estate agents or through other means, and then go through the closing process. The real estate agent gets a commission.

    Sometimes the commission on foreclosures isn't as good as on other properties, so agents won't push them. And the properties often need work, which also makes them hard to sell. So the creditor is sitting there with money tied up in property that could be put to use making money.
     
  10. eelb

    eelb Active Member

    I was referring to a non-mortgage forced sale by a judgment creditor. The way I interpret the statute in my state (IL), the judgment holder instructs the sheriff to sell the property at auction. The debtor would remain in the home until the sheriff's sale takes place, then the creditor would pay the debtor the homestead exemption. The high bidder at the sheriff's sale would then own the property. There wouldn't be an interim period of time where the house was not owned by either the debtor or the new owner from the sheriff's sale. Property upkeep would be seamless from the debtor to the new owner.

    There's much I obviously don't understand about the complexity of this. I do know there is a difference in the law compared to a mortgage foreclosure.
     
  11. bizwiz41

    bizwiz41 Well-Known Member

    This scenario sounds straightforward on the surface, but it gets difficult in execution. Buying property at a foreclosure, WITH the resident still living there opens up a legal liability nightmare.

    Also, it is very difficult to physically evict someone from a residence. I know it sounds easy, the Sheriff's dept. simply tells them to go, but it never works this way in the real world. With the person living there, they also may "trash the place" (as flacorp stated), or they may "get hurt" and sue the new owner. If they "pay rent" for the time they are there, the legal liability compounds.

    In brief, these tactics are messy; they never go cleanly, and often the risk exposure outweighs the possible gains. It is usually best to wait it out until a sale of the property, or death and estate actions to take action on collecting.
     
  12. dixiecup

    dixiecup Well-Known Member

    This almost happened to me two years ago. Husband lost his job, was 5 months behind in payments. I was in the process of trying to work something out then-----wham! Fortunately for me, a friend of mine saw it in the local paper that my house was to be auctioned off on the courthouse lawn on a certain date. If my friend had not told me about it, I'd be out of a home today. I eventually did get a repayment plan worked out, but I got no notice at all of the pending auction.
     

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