MORTGAGE FORECLOSURE DEFENSE

Transcription

1 MORTGAGE FORECLOSURE DEFENSE FOR CVLS VOLUNTEER PRO BONO ATTORNEYS Patricia Nelson Matthew Hulstein Tracy Walsh

2 INTRODUCTION Defending the average foreclosure in court isn t glamorous, but utterly vital. While policy work is necessary to challenge banking institutions and practices, lowincome families lose their homes daily while we wait for politicians to negotiate or for the courts to get it right. Many lenders and their counsel treat foreclosure as a summary proceeding. It is not. Foreclosure is a lawsuit just like any other, and defendants have rights. They have the right to insist that lender s counsel follow the rules of civil procedure. They have the right to conduct discovery. They have the right to be properly reviewed for loss mitigation. They deserve to have an attorney help them enforce all of their rights. Their home is at stake. Attorneys, legal aid and private alike, often rebuff foreclosure defense work as either too complicated or hopeless. It is neither. Hopefully, the following materials will demystify the foreclosure process and you will realize it is a litigation proceeding like any other (with its own twists and turns, of course). Given enough time, most borrowers can recover from temporary financial setbacks and save their home. SCOPE OF THIS MANUAL This manual is intended to help you understand the basic framework of foreclosure defense. With this manual and support from a CVLS attorney, you will be 2

3 able to confidently and competently defend a foreclosure. As with any area of the law, there are infinite nuances, defenses, issues and strategies apparent to those with enough wisdom. This manual will not and cannot cover it all, and shouldn t substitute for your own research. Instead, this manual will focus on understanding the basic process, and identifying and solving the most common and pertinent issues. GOVERNING LAW Illinois Mortgage Foreclosure Law (IMFL) A mortgage foreclosure case is a statutory process consisting of ten steps: (1) Precomplaint; (2) Complaint; (3) Jurisdiction; (4) Judgment; (5) Redemption; (6) Sale; (7) Confirmation of Sale; (8) Possession; and (9) Surplus or Deficiency. These definite steps follow in a logical order and are set forth and governed by the Code of Civil Procedure at Illinois Mortgage Foreclosure Law (IMFL) 735 ILCS 5/ , et. seq. Illinois Supreme Court Rules Two Illinois Supreme Court Rules are specifically applicable to mortgage foreclosures and can be used to bolster a defense. Sup. Ct. Rule 113 requires Plaintiffs to attach all assignments of the mortgage note to the Complaint, showing chain of title of the debt. Sup. Ct. Rule 114 requires Plaintiffs to file an affidavit attesting to their compliance with all available loss mitigation programs before Judgment of Foreclosure is entered. 3

4 Cook County Local Rules Local Rule 7.3 expands on the requirements of publication service set out in 735 ILCS 5/2-206 and requires that all affidavits for service of summons by publication in mortgage foreclosure cases sets forth with particularity the action taken to demonstrate an honest and well directed effort to ascertain the whereabouts of the defendant(s) Local Rule 21 provides for and governs the Circuit Court of Cook County Mortgage Foreclosure Mediation Program; a free mediation service for eligible foreclosure defendants. Cook County Standing Orders The Mortgage Foreclosure section has a uniform standing order for all mortgage foreclosure cases, judges and courtrooms. It has specific information regarding court calls, emergency motions, courtesy copies, etc. Be sure to consult the most recent standing order available prior to appearing. It can have dire consequences if not. For example, if you fail to deliver a courtesy copy of your pleading within the required time, your case will be stricken from the call. 4

5 IMPORTANT CONCEPTS, DEFINITIONS, ACRONYMS AND LINGO UNIQUE TO FORECLOSURE Most areas of law are laden with acronyms, legal constructs and lingo unique to that area. Foreclosure defense is no different. Below is a list of invaluable foreclosure concepts, definitions and lingo. Mortgage vs. Note: A mortgage and note are two individual documents although in practice they are often lumped together and referred to as the mortgage. In reality, the mortgage is the document which grants a security interest in the property to the lender. The note is a promise to pay the sum due on the loan. In other words, the mortgage allows the lender to take the property back if the borrower does not pay on the debt in the note. One of the homeowners may have signed the mortgage but not the note. This means that homeowner is not obligated to make the mortgage payment, but if it is not paid, that homeowner could lose their interest in the property through foreclosure. Mortgagor vs. Mortgagee: Contrary to intuition, in the foreclosure world, the lender is referred to as the mortgagee and the borrower is referred to as the mortgagor. The homeowner (mortgagor) is the grantor of the security interest to the lender (mortgagee). 5

6 Borrower vs. Homeowner: In practice, these terms are often used interchangeably. For consistency, in this manual, the Homeowner will refer to someone who is on title to the property and the borrower will refer to someone who has signed the note. Lenders, Banks, Plaintiffs, Owners, Investors, Servicers and Trusts: These terms in practice are often used as synonyms but each has a distinct and different role in the foreclosure process. Lender and Bank refer to the banking institution that owns the note and has the right to enforce it. It can either refer to the original lending institution, or the institution that currently holds the note. When mortgages are bought and sold, they are often lumped together in pools and sold as a package to investors under a trust agreement. The terms Owners or Investors refer to the ultimate beneficiaries of a mortgage pooled trust (or the trustee acting on their behalf). Servicers contract with owners to provide the ins and outs of the daily servicing of the loans (collecting and applying payments, escrow functions, and evaluation for loss mitigation). Most of the big servicers in the industry (Chase, Bank of America, Wells Fargo) can also be owners of notes. It is possible, and somewhat frequent, that one banking entity is both the owner and the servicer of the note. 6

7 The named Plaintiff can be either the owner, servicer, or their agent. (735 ILCS 5/ (b), 1504(a)(3)(N). See also Mortg. Elec. Registration Sys., Inc. v. Barnes, 406 Ill. App. 3d 1, 7-8 (App. Ct. 1st Dist. 2010) (stating that Illinois [f]oreclosure [l]aw indicates that the legal holder of the indebtedness, a pledgee, an agent, or a trustee may file the case ). Pooling and Servicing Agreements (PSAs): Servicers enter into a contract with the owner of the pool of loans. The terms of the contract can bind the servicer on certain loss mitigation parameters. The servicer is bound by these agreements and cannot agree to alternatives that are not authorized under the agreement. PSAs rarely prohibit specific loss mitigation options, but can limit certain parameters such as interest rates that can be offered. Pooling and Service agreements can be found at ( Assignment, Endorsement, Allonges: When ownership of a note is transferred, it can be accomplished either by assignment or endorsement. Assignment is akin to a bill or sale stating that ownership of the note is transferred from one entity to another. Assignments do not have to be in writing nor recorded. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17, 30 (App. Ct. 1st Dist. 1998) ( In Illinois, oral assignments are valid, unless expressly prohibited by statute. ) (citing Charles Poch, Inc. v. Nat l Tire Servs., Inc. (In re National Tire Servs., Inc.), 201 B.R. 788 (Bankr. N.D. Ill. 1996), Buck v. Ill. Nat l Bank & Trust Co., 79 Ill. App. 2d 101 (App. Ct. 2d Dist. 1967)). 7

8 Notes are bearer paper, therefore, they can be endorsed (and ownership transferred) directly on the document itself. A blank endorsement means that the transferring entity endorsed the note, but did not state who the note is transferred to. Since notes are bearer paper, physical possession of a note that is endorsed in blank begets ownership of that note. 810 ILCS 5/3-109, 205(b) An allonge is a separate piece of paper attached to the note which provides for endorsements when it is impracticable to fit the endorsements onto the document itself. Lenders and their Attorneys: This is the one area of law where sometimes you deal with the attorney, and sometimes you deal directly with the client. The most frustrating part is that the lender and their attorney rarely speak to each other. In practice, you will need to speak to the attorney regarding the specifics of litigation and directly to the lender regarding loss mitigation. You should get permission from the attorney to speak directly to the lender. Loss Mitigation: Loss Mitigation is a catch-all term encompassing the options to both retain and relinquish the property; loan modification, reinstatement, repayment plans, forbearance agreements, deed in lieu of foreclosure, etc. It is the process of negotiation (application, offer, acceptance) between the borrower and the lender to prevent or solve the foreclosure. Dignified Exit: Dignified Exit is another catch-all term encompassing the options to relinquish the property; deed in lieu, consent judgment, etc. 8

9 Reinstatement. Reinstatement is the borrower s right to pay all funds owed to bring the mortgage current, and then to resume making scheduled payments. The amount will include all of the arrearages plus any attorney s fees and costs that have been incurred. The borrower has 90 days from the date of service to reinstate the loan, and may only be allowed to reinstate once every five years. 735 ILCS 5/ In practice, lenders rarely refuse to accept reinstatement beyond the 90 day period. Redemption. Redemption is the borrower s right to pay off the loan in full and prevent the property from being sold through the foreclosure. The borrower has the right to redeem up to seven months from the date they are served 90 days from the date of judgment, whichever is later. This means that the borrower either sells the home or refinances to pay off the loan completely. 735 ILCS 5/ Possession During the Foreclosure: The borrower has the right to possession of the property during the foreclosure. 735 ILCS 5/ Once the foreclosure sale has been approved by the court, the homeowner has 30 days to vacate the property. Condominium Association Fees: Homeowner associations can take possession of the property much quicker than a foreclosing bank. If the homeowner does not pay the association dues (regardless of whether a foreclosure has been filed), the association has the right under the Forcible Entry and Detainer Act (735 ILCS 5/9-101, et seq.) to evict the homeowner and take physical possession of the unit. 9

10 HUD Certified Counselors: The US Department of Housing and Urban Development certifies not-for-profit housing counseling agencies to assist borrowers facing or in foreclosure. They are completely free, regardless of income. They help the borrower assess their situation, work out a budget, prioritize debts, evaluate loss mitigation options, and submit loss mitigation applications directly to most servicers through a loan portal. A list of local HUD offices is provided at Home Affordable Modification Program (HAMP): HAMP is a federal program established to help eligible home owners modify their loans. Servicers follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of the borrower s gross monthly income. The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term of the loan up to a maximum of 40 years, and then if necessary forbearing principal. GSE Fannie Mae / Freddie Mac: GSE stands for Government Sponsored Enterprise. These are traditionally privately held corporations (Fannie and Freddie recently having gone public) with public purposes created by the US Congress to reduce the cost of capital for certain sectors such as homeowners. GSEs carry the implicit backing of the federal government but are not direct obligations of the US government. Fannie Mae and Freddie Mac (the owners of most mortgage obligations) are examples of GSEs. 10

11 FHA: The Federal Housing Administration provides mortgage insurance on loans made by FHA-approved lenders. FHA mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner's default. National Mortgage Settlement: In early 2012, the federal government and 49 attorneys general entered into a joint settlement with the five largest mortgage servicers (Ally/GMAC, Bank of America, Citi, JPMorgan Chase, Wells Fargo). The agreement culminated after investigators found that the servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct ( robosigning ). The settlement provides for loan modifications with principal forgiveness for some homeowners. CFPB Rules: In January 2014, new rules regarding loan origination and servicing were promulgated by the federal Consumer Finance Protection Bureau. The rules were made a part of Regulation X under The Real Estate and Settlement Procedures Act. Prior to these rules, there were no uniform rules regarding loss mitigation servicing practices. The new rules are found at 12 CFR Second Mortgages: Second mortgages are inferior lienholders and will be named as defendants in the foreclosure, but they rarely participate. When the foreclosure sale is 11

12 approved, their security interest in the property is foreclosed, but they can still file suit against the borrower for the unpaid balance on the note. Deficiency Judgment: A personal deficiency judgment is a judgment against the borrower for the amount the lender doesn t recover after the foreclosure sale (if the property sells for less than what is owed). In order for the lender to get a personal deficiency judgment, the judge must order it as part of the final order approving sale. By custom, the judges in Cook County rarely grant them, and instead, grant only in rem deficiency judgments. Surplus: A surplus is the opposite of a personal deficiency judgment. It is the amount of funds left over if the property sells at the foreclosure sale for more than is owed on the note. The borrower is generally entitled to the surplus proceeds and can easily petition the court pro se to receive the funds. Final and Appealable Order: A Judgment of Foreclosure is not a final and appealable order. Only the Order Approving Sale is final and appealable. EMC Mortg. Corp. v. Kemp, 982 N.E. 2d 152, 154 (Ill. 2012). Chapter 7 vs. Chapter 13 Bankruptcy: Filing bankruptcy can stay foreclosure proceedings so that the foreclosure cannot proceed in Chancery court until the Bankruptcy court lifts the stay or the debtor is discharged from bankruptcy. 12

13 When a borrower files Chapter 13, all of the client s debt, including the mortgage arrearages, will be consolidated and the client will make one payment to the trustee to pay those debts through an approved plan. The plan usually lasts 5 years. The borrower will have to make their regularly scheduled mortgage payment in addition to the consolidated debt payment to the trustee during those 5 years. After completion of the plan, the arrearages will be considered repaid in full, and the borrower will continue making their monthly mortgage payment. The foreclosure case will be stayed until the bankruptcy is discharged or the stay is lifted. Chapter 7 bankruptcy releases liability of most debt without any repayment. If the debt on the note is made part of the bankruptcy estate, the debt will be discharged through the bankruptcy. Once discharged, the borrower will no longer have any personal liability on the note. However, the lien created by the mortgage is not affected, and the lender may still pursue a foreclosure to foreclose the security interest regardless of the discharge. In order to stay a foreclosure, bankruptcy needs to be filed before the actual foreclosure sale of the property. It will not stay the foreclosure if it is filed after sale, even if it is before the sale has been approved by the court. Colon v. Option One Mortgage Corp., (7 th Cir., February 11, 2003), 319 F.3d

14 ASSESSING YOUR CASE CLIENT COUNSELING AND REMEDIES Can you ever win a foreclosure case? You are a lawyer, of course the answer is yes and no. It all depends on how you define win. Rarely will you get the complaint dismissed so the client walks away free and clear. That is not how you should define winning a foreclosure case. The only way to properly define a win is through your client s eyes. What is it that they want? When is it legitimate to mount a defense on their behalf? Defining what your client desires is essential in deciding how to defend the foreclosure. In order to determine your legal course of action, you must determine who you are representing, what led to your client s current position, what they want from here on out, whether that is reasonable, and what tools you can use to effectuate that outcome. Who is your client? Your client(s) can be anyone with an interest in title to the property or with personal liability on the note. If you represent more than one person, a potential conflict of interest can easily arise. For example, if two siblings are on title to the property but only one signed the note, the note signor may be most interested in reducing the potential for a deficiency judgment while the other may be interested in remaining in the property as long as possible. Be sure to discuss the issues independently with each and if their interests align, have them execute a joint representation agreement. 14

15 What led to the default on the note? There are a multitude of legitimate reasons borrowers fall behind on their mortgage payments; loss of employment, health issues, paying off other debt, increase in property taxes, adjustable interest rates, etc. Before counseling your client on possible remedies, you must determine whether the hardship is temporary or permanent. For example, if your client s loss of income is permanent, you may need to explore dignified exit options even though your client is focusing on a robosigning issue. If your client s loss of income is temporary, you may not have to construct a detailed litigation strategy, because you know your client should be approved for a loss mitigation program. As a result, what does your client really want in the end? And, is that objective reasonable? You must determine what your client ultimately wants from your representation, even if their answer is an array of possibilities or riddled with conditions. Failure to set a clear goal in foreclosure defense often presents a trap because it is so easy to get lost in the details and the issues. For example, your client may want to ultimately keep the house. While you litigate discovery or standing issues, rather than focusing on loss mitigation, your client gets further and further behind on the mortgage, making a loan modification more expensive if not impossible. While you have represented your client well in court, you have ultimately lost the battle. In the end, does your client want: 15

16 1. To keep the home are they expecting to walk away for free, to get principal forgiveness? Can they afford a loan modification? 2. To relinquish the home if so, when? Do they have reason to be concerned about a deficiency judgment? 3. Time Is their need temporary, such as time to get their finances straightened out, to sell the home, etc., so that they can ultimately stay. Or, do they want as much time in the home as possible knowing they will leave in the end? 4. Punitive action against the bank Has the bank s alleged wrongdoing given rise to a counter-claim that would provide a punitive remedy? Or, does your client want their day in court to expose the bank s actions to the judge? To determine whether your client s objective is reasonable, you will need to evaluate the available remedies and apply them to your client s case. AVAILABLE RETENTION OPTIONS Reinstatement: Borrowers have the statutory right to pay all past due amounts to bring the mortgage current and resume making regularly scheduled payments. The reinstatement amount will include all of the arrearages (missed payments) plus any attorney s fees and costs that have accrued. Statutorily, the borrower has 90 days from the date of service to reinstate the loan, and may only be allowed to reinstate once every five years. 735 ILCS 5/ In practice, 16

17 however, lenders almost always accept reinstatement at any time before the property has been sold to a third party. Is reinstatement reasonable? Factors to consider: Does your client have the money? Will the lender still accept reinstatement past the mandatory statutory date? Can your client resume making regular payments? Even if they can, do they want to explore whether they are eligible to lower their payment with a loan modification? Loss Mitigation: Depending on who owns and services the loan, the servicer may offer various loss mitigation options. To be enforceable, all loss mitigation agreements must be in writing. See FDIC v. O'Malley, (1994), 163 Ill.2d 130, 643 N.E.2d 825. Loan Modification: A loan modification is a permanent restructuring of the loan. There are only three variables in any loan that can be adjusted; the interest rate, the total balance, and the length (term) of the loan. Adjusting these three variables allows the loan to be technically reinstated and the foreclosure will be dismissed once the modification becomes permanent. The government requires certain servicers to offer loan modifications according to programs and guidelines developed by the Treasure Department. There are a multitude of programs and an infinite number of nuances to each of these programs. Almost all require the borrower to make three trial payments before a permanent modification is offered. 17

18 Is a loan modification reasonable? To assess whether your servicer offers a particular program and whether your client qualifies, you will need to evaluate your case using the CVLS Advocate Workbook available from your CVLS support attorney. Forbearance: A forbearance agreement allows the borrower to make a reduced payment or no payment at all for a specified time. During the forbearance period, the foreclosure case will not move forward in court. However, the borrower will continue to be reported delinquent to the credit bureaus and arrearages will continue to accrue. At the end of the forbearance, you will need to redefine your client s goals. If the borrower wants to keep the property and has the financial ability, they will have to apply for a loan modification. Is a forbearance reasonable? Factors to consider: Is your client s inability to pay temporary? Is it reasonable that their income will increase during the forbearance period? Repayment Plan: Some lenders allow the borrower to catch up on missed payments through a repayment plan. Typically, the borrower is required to make their regular monthly mortgage payment plus 1/6 th or 1/12 th of the arrearages so that the loan is brought fully current within 6 or 12 months. Sometimes, lenders will allow, or even require a borrower to make a down payment to reduce the arrearages paid back over time. Is a repayment plan reasonable? 18

19 Factors to consider: Can your client afford to make their regular payment in addition to paying on the arrearages? Are the terms of the current note so advantageous that a loan modification would be moot? Bankruptcy: Chapter 7 will temporarily stay the foreclosure proceedings, but will not cure the default and eventually the foreclosure will proceed. However, the borrower has unsecured debt payments making a loan modification unaffordable, Chapter 7 followed by an application for a loan modification may be an option. Is a Chapter 7 Bankruptcy reasonable? Factors to consider: Will elimination of the client s other debt make a loan modification affordable? Will a discharge in bankruptcy be a bar to eligibility for a loan modification? In addition, the borrower must meet the means test for bankruptcy, which is beyond the scope of this manual. CVLS can provide a consultation with a bankruptcy attorney to better evaluate this option. A Chapter 13 bankruptcy will stay the foreclosure proceedings while the borrower makes their regular mortgage payments plus a payment to the bankruptcy trustee to pay back the arrearages and other debt. A loan modification can be effectuated while in Chapter 13. Is a Chapter 13 Bankruptcy reasonable? Factors to consider: The borrower will be in their Chapter 13 plan for 5 years. Over 80% of people default on their plan. Can your client really afford to make payments for 5 years? Is there a less drastic option a Chapter 7 in combination with a loan modification? The details of Chapter 13 bankruptcy are beyond the scope of this manual. 19

20 CVLS can provide a consultation with a bankruptcy attorney to better evaluate this option. When to file a Bankruptcy If either Chapter 7 or Chapter 13 bankruptcy is a potential option for your client, it needs to be prepared for and cannot be effective at the last minute. In order to stay the foreclosure, the bankruptcy needs to be filed before the actual sale of the property. It will not stay the foreclosure if it is filed after sale, even if it is before the sale has been approved by the court. A debtor can not file between sale and confirmation according to the law set forth in the decision in Colon v. Option One Mortgage Corp., (7 th Cir., February 11, 2003), 319 F.3d 912. AVAILABLE RELINQUISHMENT OPTIONS Are any relinquishment options reasonable? Factors to consider for any option: 1. How much time can your client expect to remain in the home with and without a relinquishment option? Refer to the Sample Foreclosure Timeline in Appendix A to this manual to help you evaluate. 2. What are your client s available, realistic, alternative housing possibilities? Make sure your client has done their research and has a concrete plan before you move forward. 3. What is the likelihood of a deficiency judgment? 20

21 In Cook County, judges do not regularly grant deficiency judgments but you cannot guarantee this to your client. What is your client s risk tolerance on this issue? 4. What is the impact of a deficiency judgment on your client? If your client has already been discharged in bankruptcy, they have no personal liability on the note and a deficiency judgment is meaningless. Is your client judgment proof? For example: if your client receives only Social Security Disability and doesn t anticipate that changing, then a deficiency judgment is meaningless because it is uncollectable. 5. What is the potential impact on your client s credit score? Most damage to the credit score is done during the first three months of missed payments. The difference between a dignified exit option and a judgment of foreclosure is minimal, usually less than 20 points depending on where the credit score was before default. 6. Did your client actually have a hardship? Your client must apply for any dignified exit option, they are not automatic. Therefore, your client must have endured a financial hardship and not have engaged in a strategic default. 7. Potential Tax Consequences. Currently, any forgiven debt is potentially taxable as income to your client. Prior, the Mortgage Forgiveness Debt Relief Act exempted tax liability on forgiven debt for primary residences. That law expired at the end of 2013 and has yet to be renewed. Client specific tax considerations are beyond the scope of this manual. 21

22 However, CVLS has volunteer tax attorneys available for individual consults with you and your client. Deed in Lieu of foreclosure: 735 ILCS 5/ This option allows the homeowner to deed the property back to the bank. In exchange, the lender agrees to forego any personal deficiency judgment. This is not an option when there are other liens on the property, as the lender take title subject to the other liens. Usually, the homeowner will be need to: place the property on the market for sale for 90 days, negotiate an exit date, and leave the property in broom swept condition. Sometimes, the lender may offer a financial incentive, termed cash for keys or relocation assistance in exchange for the execution of the deed in lieu. Is a deed in lieu of foreclosure reasonable? Additional factors to consider: Will the bank agree to waive deficiency? When can your client move? Is it more financially advantageous to allow the foreclosure to proceed and save the money the client would be using to rent another home? Consent Judgment: 735 ILCS 5/ This alternative is similar to a deed in lieu, but used when there are other liens on the property. The agreement will grant title to the lender upon entry of an agreed Judgment of Foreclosure. You can negotiate an exit date for your client in the consent judgment. The statute provides for a mandatory waiver of deficiency judgment. The second lien holder is bound by the judgment if they receive proper notice and do not object. However, the foreclosure only eliminates the second lien 22

23 holders security interest. They still have the option to sue the borrower directly for liability on the note. Is a Consent Judgment reasonable? Additional Factors to consider: This option is unavailable if there is a US tax lien against the property. Is your client willing to risk a future collection suit by the second lien holder? They are rare but they do exist. Short Sale: This is an alternative whereby your client has a contract for sale to a third party and the sale price will not cover the outstanding mortgage. The foreclosure process will proceed in court until the sale has closed. The lender must agree to accept a lesser amount than is due. A waiver of deficiency is not automatic and must be negotiated. In the past, it was difficult to get an answer from the bank as to whether they would accept the offer without losing the buyer. Now, 735 ILCS 5/ (b) requires lenders to accept or reject the offer for short sale within 90 days. Is a Short Sale reasonable? Additional Factors to consider: The sale must be an arms-length transaction and your client will most likely have to sign an affidavit to that effect no short sales to family members. The lender has to accept the short sale offer. If there is a second mortgage, the first lender will have to agree to take even less than the sale proceeds if the second lienholder is going to agree to waive deficiency. Allowing the foreclosure to proceed: This can be a legitimate and viable option for many homeowners. After exploring all of the potential retention and relinquishment options 23