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To The Rescue By Steven Greenberg

steven-greenberg

To The Rescue

By Steven Greenberg

“Foreclosure rescue,” the very term conjures up an image of someone riding in on a white horse, sword raised, ready to take on the evil lender who is foreclosing on a homeowner in distress. Unfortunately, sometimes the “white knight” is really a devious villain in disguise, with the intent of defrauding the distressed homeowner.

As a REALTOR®, you may have received inquiries from homeowners with regard to “foreclosure rescue” and “foreclosure fraud.” The following may help you better understand the implications of a “foreclosure-rescue transaction.”

To protect homeowners from unscrupulous foreclosure rescue consultants and equity purchasers, the legislature recently passed a “foreclosure fraud” bill. The new legislation created section 501.1377, F.S., and went into effect October 1, 2008. The stated intent of the legislation is to provide homeowners who are at risk of losing their homes due to foreclosure or nonpayment of taxes, with the information necessary to make informed decisions regarding the sale or transfer of his or her home to on equity purchaser.

The first thing to remember is that the statute only applies to “foreclosure-rescue transactions,” which is specifically defined as transactions in which (i) residential real property in foreclosure is conveyed to an equity purchaser (“equity purchaser” is defined in the statute as any person who acquires a legal, equitable, or beneficial ownership interest in any residential real property as a result of a foreclosure-rescue transaction, but specifically excludes interests obtained through foreclosure, court order and various intra-family conveyances), (ii) the homeowner maintains a legal or equitable interest in the residential real property conveyed (i.e. an option, lease option, beneficiary or trustee) and (iii) it is designed or intended by the parties to stop, avoid, or delay foreclosure proceedings against a homeowner’s residential real property.

The statute includes numerous safeguards to protect homeowners who are involved in such transactions. Of particular importance is a provision that creates a rebuttable presumption that the foreclosure rescue transaction is really a loan transaction. While the definition of a “foreclosure-rescue transaction” is quite broad, this presumption only applies to those foreclosure rescue transactions that specifically include an agreement allowing the homeowner to repurchase the property, such as a lease option. In such situation, the statute provides that the deed from the homeowner to the equity purchaser is deemed a mortgage rather than a conveyance. It is important to note that the above presumption does not apply as against creditors or subsequent purchasers for valuable consideration, without notice, unless the repurchase agreement (or a memorandum thereof) is recorded.

Although many equity purchasers include “foreclosure rescue” in their name, it is not always going to be obvious when the statute applies. Accordingly, if there was a foreclosure action filed against the homeowner and then a subsequent conveyance of the property which includes a right of repurchase by the homeowner either in the deed or in a separate writing, one must assume that the deed into the equity purchaser will be treated like a mortgage. For a conveyance from the equity purchaser, it will be necessary to obtain and record a deed from the original homeowner as well as a deed and satisfaction of mortgage from the equity purchaser. Furthermore, a mortgage from the equity purchaser will require a deed from the original homeowner which specifically releases its option to purchase and a satisfaction of mortgage from the equity purchaser.

The penalties for violation of the act are severe. The section provides that any person who violates any provision commits an unfair and deceptive trade practice and is subject to the penalties and remedies provided in part II of Chapter 501, including a monetary fine of up to $15,000 per penalty

Steven R. Greenberg has practiced Real Estate law in Sarasota since 1986 and is a shareholder in the law firm of Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A. He is board certified by the Florida Bar in real property law and frequently lectures on matters involving real estate transactions. Steven may be reached at (941) 365-6216 or by calling Linda Witt, Director of Marketing, directly at (941) 586-4412 or by email at MzWitt@aol.com.

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