A client from Miami came into my office this week and explained to me his situation. His mother-in-law has been paying the first mortgage on her house but has failed to pay her 2nd mortgage for a considerable period of time. Her loan modification attorney told her to modify the first mortgage and worry about the second later. Bad advice.
Traditionally if a homeowner failed to pay his or her mortgage the mortgagor, such as Florida Bank, would just foreclose on the home and take it back, however due to the drastic decreases in home prices in South Florida, some mortgagors are getting creative. Rather than foreclosure on the property the 2nd mortgagors sue on the note, obtain a judgment and then wage garnish the note holder. Here is an example:
Client owns a home in Naples, Florida:
1st mortgage $250,000
2nd mortgage $30,000
Current home value $175,000
In this case if a debtor fails to pay the 2nd mortgage, then the 2nd mortgage can foreclose on the property, but economically speaking it would do them no good. If the house is sold at auction the monies received wouldn’t even cover the 1st mortgage, leaving the 2nd mortgage with zero. By suing on the note, rather than on the property, the 2nd mortgagor can wage garnish the debt holder, up to 31% of their gross wages, until the debt is paid off.
A great way to stop a wage garnishment is to file bankruptcy. Upon the filing of a bankruptcy the wage garnishment is immediately frozen and the debt will likely be discharged in a Florida Bankruptcy Court. Alternatively the filing of a Chapter 13 bankruptcy could wipe out a 2nd mortgage and or home equity line in your home. If you live in the greater Miami or Fort Lauderdale area and would like to discuss your situation with a bankruptcy attorney feel free to give our office a call: 954-309-5559