Foreclosure Issues Mortgagor -- borrower Estate or trust owned mortgaged property Foreclosure Issues in Trust and Estate Administration Donna L. Longhouse, J.D., LL.M. Fowler White Boggs P.A. 813-222-2091; 727-825-3601 Post Office Box 1438 Tampa FL 33601 Mortgagee -- lender Estate or trust held loan secured by mortgage on property Summary of issues Probate and creditors claims Fraudulent conveyance Recovery on debt and lender liablity Estate planning Is there a co-owner? Is co-owner liable on debt? Is debt joint and several? Are there assets in estate (or revocable trust) subject to creditors claims? Is Decedent equally liable for debt? Open probate and send notice to creditors or wait two years to Is Decedent equally liable for debt? Is Co-Owner current on debt? Is Decedent equally liable for debt? Is Co-Owner current on debt? 1
Is Decedent equally liable for debt? Is Co-Owner current on debt? Open estate and serve notice to creditors to run claims period Is Decedent equally liable for debt? Is Co-Owner current on debt? NO Open estate and serve notice to creditors to run claims period Initiate proceedings against co-owner Are there assets in estate (or revocable trust) subject to creditors claims? Are there assets in estate (or revocable trust) subject to creditors claims? Open probate; ascertain creditors; Serve notice on mortgagee to eliminate deficiency judgment Defend deficiency judgment action or negotiate settlement NO NO No duty for personal representative or heirs to petition for probate If mortgagee opens probate, heirs should protect their interests through counsel Smith dies owning underwater property Smith owns beach condo valued at $500,000 Condo mortgaged for $1,000,000 loan; loan current Beach condo is homestead property Smith owns house in Seminole valued at $500,000 Seminole property is debt-free Smith transfers Seminole property to his children ½ on December 31 and ½ on January 1 Smith dies unexpectedly in March Smith has an IRA and joint checking account with one child; all children beneficiaries of IRA Did Smith make a fraudulent conveyance? Ch. 726, Fla. Stat. Can mortgagee open Smith s estate for purpose of filing a contingent claim for possible deficiency on foreclosure sale and asserting fraudulent conveyance claim in estate? 2
Can mortgagee open Smith s estate for purpose of filing a contingent claim for possible deficiency on foreclosure sale? Creditor can open decedent s estate Beneficiaries should be represented in estate action to protect their interests as transferees of property and to ensure estate administered correctly or if assets available from foreclosure sale Normal creditor claims periods apply for purpose of deficiency judgment Fraudulent conveyance claim may be made in estate Valdivia v Valdivia 593 So2d 1190 (3d DCA 1992) Assets at risk Seminole property? No constitutional protections IRA? Joint checking account? Assets at risk Seminole property? No constitutional protections IRA? Protected from creditors during decedent s lifetime But, see Robertson v. Deeb 16So.3d 936 (Fla. 2d DCA) no protection for inherited IRA Joint checking account? Assets at risk Seminole property? No constitutional protections IRA? Protected from creditors during decedent s lifetime But, see Robertson v. Deeb 16 So.2d 936 (Fla. 2d DCA) Joint checking account? Trace assets from decedent? When established; joint for convenience? Fraudulent Transfers Obtain engagement letter for purpose of providing estate or trust advice Once engaged, help client determine liability for mortgaged property Question client regarding decedent s assets and debts Did decedent co-own assets at time of death passing outside probate? Convenience accounts? Did decedent transfer assets prior to death? What are circumstances of transfer? (fair market value of which is less than balance due on loans secured by property) Is probate necessary to transfer decedent s interest in property? Determine if there is a co-owner Did Decedent sign promissory note? Is Decedent equally liable for debt? Open probate and send notice to mortgagee Wait two years 3
Is Decedent equally liable for debt? Is Co-Owner current on debt? Is Decedent equally liable for debt? Is Co-Owner current on debt? (e.g. decedent has been paying debt) NO Open probate to eliminate decedent s liability Initiate proceedings against co-owner Is Decedent equally liable for debt? Is Co-Owner current on debt? (e.g. decedent has been paying debt) Open probate to eliminate decedent s liability Is death a default under loan documents? Probate Two year claims period; could trigger foreclosure Probate after two year claims period allows transfer of assets subject to creditors claims Is death a default under loan documents? Probate Risk deficiency judgment Balance cost of probate against assets subject to creditors' claims Is death a default under loan documents? Probate Two year claims period; could trigger foreclosure Probate after two year claims period allows transfer of assets which were subject to creditors claims 4
Probate after two year claims period allows transfer of assets subject to creditors claims What happens to mortgaged property? Can PR transfer to beneficiaries and cause them to be parties in foreclosure? Keep estate open for foreclosure or sale? No more deficiency judgment issues Estate owns promissory note secured by mortgage in default Is estate primary security or subordinate? Examine note for options for collection Generally can sue on the note, and Initiate foreclosure proceedings Gottschamer v. August, Thompson, Sherr, Clark & Shafer, P.C. 438 So.2d 408 (2d DCA Fla.) (Suit on guaranty and a foreclosure are not inconsistent remedies) New foreclosure filing rules from Supreme Court Identify other secured interests in connection with property -- mortgage in default Identify other secured interests What if primary or secondary secured interest is held by a beneficiary of estate? Does fiduciary have duty to not harm beneficiary with security interest? If fiduciary does not seek claim against beneficiary with security interest is he subject to liability From other beneficiaries From other secured interests -- Suit on note or foreclosure Search mortgagee s assets to find other assets for collection once judgment achieved on suit on note Sources to search: Official public records; or internet search Corporate records Accurint; PACER AutoTrack Hire private investigator Is there a guarantor on the loan? Suit against guarantor can go forward also Contaminated property Estate or trust seeks recovery on default Technical issues Lender liability Borrower can assert as affirmative defense bad acts of lender which would result in liability to estate If Notice to Creditors served, or 2 year limitations period passes, can they recover? Lender liability suit could survive as to decedent s estate if within applicable claims period If promissory note is distributed (to beneficiary or trust) becomes their responsibility to foreclose Liability of fiduciary for distributing? Properly identify name of fiduciary and estate or trust Value of Real Property or Mortgage Foreclosure Claim form required Assign rights in foreclosure to single member LLC CDD debt lien, HOA fees, property taxes, etc. 5
Estate planning Consider advance planning for clients estates for protection from potential liability on default judgment or collection action Homestead Retirement plan accounts 529 plans Annuities Life Insurance 6