People dread even mentioning the irking process called foreclosure. Why? It is one of the most devastating financial nightmares that could ever happen to a property owner. Florida is the third most populated state with filed foreclosure cases. As of January 2022, South Florida trends as one of the nation’s highest increases in foreclosure filings. Foreclosure is the process by which a lender forces the sale of a property to regain their loan from a borrower. For lenders, foreclosure is great. It is by far one of the best strategies for a lender to press the reset button on a nonperforming note. Amongst other exit strategies, lenders are able to recoup their money and start the process again of finding another borrower to lend money. Unfortunately, for most homeowners, the foreclosure process is a long, enduring, and agonizing process of finding a way to save their family home, where so many memories are kept and remembered. All it takes is a couple of missed payments and financial hardship for a homeowner to be left in the foreclosure world wind.
Whether you’re currently facing foreclosure or not, a question you must ask yourself, what do you do when can’t pay your loans? Knowing that most secured lenders play a relatively safe hand in the face of a borrower filing bankruptcy, going through a divorce, experiencing job loss, a downturn market, or just hard times, how do you, the borrower, defend yourself to safeguard your assets? The answer is simple, asset protection. Even though most property lenders are secured by liens placed against properties, there are ways to protect your asset from a scrupulous lender who is simply waiting for you to fall short on your payments.
It’s important to understand that asset protection works best when you take proactive steps before your options are limited. Many individuals would rather take a retroactive approach than a preventative safer approach. Once a lawsuit has been filed your options are narrowed to options that may not be as favorable than if you were to attack the situation headfirst. As we live in an altruistic society, we are all taught to deal with hard times differently. Many folks take the hide and seek approach. They hide from lenders just until it is too late. Avoiding calls from creditors and tossing out important letters will only create a recipe for disaster. On the other hand, others take the high road approach and decide they’re not going down without a fight. Regardless of your approach, implementing asset protection strategies in your financial personal and business planning, will give you a better chance on knowing when to play defense or offense.
Some of the most common strategies that can help prepare you when facing foreclosure span from communication with your lender, negotiating a short sale, refinancing, loan remodification, deed in lieu of foreclosure, or bankruptcy. As we discuss some of these options, one should consider their financial goals and needs in determining the best strategy.
One of the most common mistakes property owners make is titling all their assets under the same name. From property investors with large portfolios to individuals with secondary homes or vacation homes, titling all your assets under the same name exposes one to much risk in the event of a deficiency where a balance remains even after an asset has been foreclosed upon. Though it may deem costly, factoring a cost-benefit analysis, by titling properties under their own entity, one could potentially save hundreds to thousands of dollars from a mortgage gone bad. By titling multiple properties under the same LLC, a lender could seek to enforce a judgment against all properties tied to that LLC to satisfy any outstanding amount.
Lenders will sometimes ask if you have other assets to collateralize a loan. While this may guarantee better loan terms and possibly a larger loan to value, this idea of cross collateralization can pose many dangers in the face of a downturn economy or when the time comes to liquidate that portfolio. Too often, borrowers believe they have no bargaining power when negotiating with lenders. If lenders didn’t have borrowers, we wouldn’t have banks. Understandably, borrowers have just as much to lose as a lender. Lenders will fool you into believing they have more risk involved than a borrower. On the contrary, one foreclosure can set a borrower back for up to seven years of being unqualified to obtain another loan. Understanding the lending business can really set a borrower up for success. As for lenders, one bad loan means just that, a bad loan, a tax write off.
It is recommended that a borrower considers all remedies available to them when facing foreclosure. Titling assets separately is just one option. There exists plethora of other options that can help protect a borrower in preparation for a foreclosure. It may not be entirely the borrowers doing that leads to a foreclosure action. As demonstrated by COVID-19, hard times can be a byproduct of many things. Anyone can potentially face a foreclosure action. At the Presser Law Firm, P.A., we specialize building solid asset protection infrastructures for our clients. Consider it this way, if you stay ready, you ain't gotta get ready. Get your asset protection planning going today.