Saturday, June 5, 2010, 01:29 AM
Posted by Administrator
Editor's Note: Sherry Rabinowitz, a former South Florida lawyer who moved back North on the recommendation of her dermatologist ("Sherry, if you stay in Florida your skin will turn to leather and you will die of skin cancer before you turn 35.") writes:

We all love our houses. There is a beautiful emotional attachment to the place where we raise our children, sleep every night, eat our meals and watch our grass grow. But, nobody I know owns their house outright and an awful lot of people I know paid too much for thier homes (compared to the current value) or borrowed against the equity when times were better.

So, an awful lot of people I know are...in the long run...going to lose their homes. There is a good and a bad to this. The bad is the obvious: having to uproot and move, change schools, maybe have to fit into a smaller place. The good is that there won't be a house to sell (difficult to impossible these days) if a sudden job opportunity arises in, for example, Seattle or, in my case, Port Jefferson Station, New York.

I stayed on for a long time in South Florida, paying my mortgage, even though the value of my house had plummeted and even though I had stopped paying my second mortgage. I would like to share my thinking on why I did this. That is, why I paid my first mortgage payment even though I knew that, in the long run, I wasn't going to be able to keep my house.

I knew that if I stopped paying my mortgage, the mortgagee (the bank that owned the mortgage) would foreclose. But, I knew that I could defend the foreclosure and stay in the house without paying for six months? a year? two years? I knew people who had defended a foreclosure case against them and there house for longer than two years and during this time they didn't pay anything on their mortgage.

But, my mortgage payment (for the 1st mortgage) was $1,125 per month. I compared the $1,125 for what I would pay for rent in any decent house or apartment in the area I wanted to live. It surprised me, but even though there were empty houses on my block and dozens of empty houses within a few miles of where I lived, I couldn't find a rental for less than $1,000 per month.

I knew that as long as I paid the $1,125 my first mortgage wouldn't foreclose. The value of my house had dropped so much that I knew I would never be able to sell my house for enough money to pay off the mortgages. So, I decided that I would view the payment on the first mortgage as kind of a "rental" payment; that I would accept that I would never be able to sell the house; and I decided to continue to pay the first mortgage.

It certainly wasn't worth the cost and trouble of moving just to save that $125 per month....even if I factored in the cost of repairs to my house while I lived there (the landlord would be responsible for these costs with a rental) it still was worth some extra money to be able to stay.

I couldn't afford to pay the second mortgage (and, as I am going to explain, there really wasn't any reason to pay it), so I had to consider what the second mortgagee was going to do. I owed so much on the first mortgage that if the second mortgage foreclosed, that lender wouldn't get any money (the money from the foreclosure sale...even if it was the second mortage foreclosing would go first to pay the first mortage because it was the "senior lien"...and there would be nothing left for the second).

The second mortgagee would know that it would receive nothing in a foreclosure, so, it would be irrational for it to hire lawyers to foreclose. It was POSSIBLE that the second mortgagee would foreclose but, in view ofthe fact that it would cost it money for lawyer's fees and costs and that it would get nothing in return (unless its foreclosure scared me into paying), it seemed extremely UNLIKELY that the second mortgage would be a problem.

The second mortgagee could ignore that it had a mortgage and sue me on "the Note" (a "mortgage" is the document that when recorded with the Clerk of Court creates a security interest in your house to secure payment of a "Promissory Note"). I wasn't worried about their suing me on the Note. I had a lot of other unsecured debt (credit cards and hospital bills), so there was a long line of other creditors who also wanted to sue me.

I figured that I would go bankrupt and get rid of the credit card debt and the hospital bills and the obligation to pay that second mortgage Note. I would move out of the house when I was ready to move without fear (since I was paying the first mortgage) that the first mortgagee would file a foreclosure and force me out sooner than I wanted to go.

If my first mortgage payment had been much more than $1,125, I would have made a different decision: I would have stopped paying the first mortgage and defended their mortgage foreclosure once they filed the case. I might have tried to get a mortgage modification...but from what I have seen, modifications that make a substantial difference are few and far between.

Had I stopped paying the first mortgage and been served with foreclosure papers, I would have a clear conscience defending the foreclosure and staying in the house as long as I could. While it would be wrong to defend a lawsuit just for the purpose of delay, so many mortgage foreclosure lawsuits I have seen make questionable claims; are legally sloppy; and ignore the basic requirements of good lawyering.

I do not mean to criticize the lawyers who prosecute these claims. They are probably overwhelmed by the number of foreclosures they must deal with. But I do believe that it is the obligation of any lawyer defending a foreclosure complaint to make sure that the foreclosing mortgagee does things the right way. And, if it takes some time....6 months? 12 months? 2 years? for them to get it right? Then it is incumbent on the homeowner to stay in the house and keep the air conditioner on so mold doesn't grow and keep vandals out and take care of the house so that when the foreclosing creditor gets the house back it is a decent house and not a house left in shambles.

Editor's Note: Ms. Rabinowitz reports that she will now be heading off the the beach to work on her tan. She stopped making her first mortgage payments as soon as she moved and she is now trying to figure out the bankruptcy law as it pertains to New York so she can go ahead and file.

Editor's Note: Your situation may be totally different from Ms. Rabinowitz's. You may have lots of assets creditors could seize. You may have a high income subject to garnishment. You may not qualify to file any kind of bankruptcy at all. Go see a lawyer....bring him/her a cup of coffee and a bagel (toasted, poppy seed, cream cheese).
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