SPRING HILL - More than a decade ago, when real estate values were inflating, some mortgage lenders were negotiating mortgages faster than they could investigate the backgrounds of those who signed promissory notes.
Florida's homestead law was a major reason the banking industry wanted to conduct those background checks to begin with, but since the real estate bubble popped to create a wave of home foreclosures, bad mortgages have come to represent a glaring problem for lenders under homestead law.
That's how ownership of one foreclosed $100,000 home in Spring Hill got turned over to someone who could no longer afford the mortgage payments.
"It's kind of crazy and it does happen here," said real estate attorney Seton Hengesbach with the Hengesbach & Hengesbach law firm. "We're starting to see that a lot now with all the foreclosures, and a lot of these mistakes are coming out of the woodwork."
Under Florida homestead rights, if only one spouse signs a promissory note for a mortgage, and that signing spouse dies, the surviving husband or wife has life estate to the home, according to Hengesbach.
As a loophole of sorts for homeowners in several states, mortgage lenders in Florida typically require that both spouses sign a mortgage for this reason, so if one spouse dies and the home goes into foreclosure, the surviving spouse will remain legally responsible for payment on the debt.
Otherwise, the obligation of payment ceases when the only signing spouse dies, and homestead laws come into play.
"In Florida, the founders of the constitution had the notion that your home should be your castle, so they put these measures in place, so homeowners can have inalienable rights," Hengesbach said. "If a husband goes out and signs without his spouse, and he passes away - that's a big problem for the bank."
That's exactly what happened in one case several years ago in Spring Hill, but the mortgage lender isn't turning ownership over easily. The bank is still in the process of appeal, Hengesbach said.
Many banks fighting foreclosure cases are arguing fraud, saying married persons signed promissory notes while failing to disclose their marital status, which is a federal offense, Hengesbach said.
"Absolutely they'll raise a fraud issue," Hengesbach said. "The problem with (the Spring Hill case) is the husband had passed away, so they have to pursue it against the person's estate."
Hengesbach said he has seen several incidents of real estate fraud in Hernando County, where a resident will take out a line of credit on a home without telling their spouse, and the title company never has the spouse's name on the mortgage.
But most practitioners in Florida are well aware of homestead rights, so failing to check an applicant's marital status is not a common mistake among lenders, Hengesbach said.
With the high numbers of recent home foreclosures, combined with inexperience and ineptitude, banks have been in increasing conflict with homestead laws across the country.
"The ones I've seen were mortgages done in times when people were doing 50, 60 closings a month per office," Hengesbach said, noting a lack of oversight and experience on the lender's behalf. "Title companies were doing so many closings there weren't enough checks in place to ensure that a spouse wasn't married."
"You're going to see most real estate problems don't manifest until banks foreclose on a home, or the property is put up for sale," he added.
There doesn't seem to be as much of a foreclosure wave this year compared to last, according to Spring Hill real estate attorney Doris Rodriguez. But unfortunately, with real estate market values suffering in Hernando County, many homeowners are still underwater, and owe more than their home is worth.
"I've had circumstances where one party is only on the mortgage and passes away, and there's no will, so the wife or husband really can't communicate with the lender," said Rodriguez, who specializes in short sales. "What I've (also) seen is the party that owns the property can't even afford an attorney to represent their case in court."
Depending on the investor, lender and type of mortgage insurance, as well as the financial status of the homeowner, a bank will request certain documentation from the homeowner before agreeing to a short sale, Rodriguez said. A short sale is when a bank allows a home to be sold for less than is owed while forgiving most of the loan deficiency.
"The benefit of a short sale is to have that balance forgiven," she said. "I always feel for the person going through it.
"Usually I recommend they try and speak with an attorney who does free consultations, and who can give them some advice on what they can and cannot do."