We review a lot of mortgage loan documents in our law practice. One problem we see a lot is the infamous balloon.
In a mortgage loan, a balloon means that the entire mortgage balance comes due on a specific date. If you don’t pay it immediately, you can get foreclosed on and lose your home.
The real estate market is really hot down here in the Sunshine State right now and, more often than not, buyers are not carefully reviewing their loan documents before signing them. Do yourself a favor by not making this mistake.
Florida law holds that all citizens have an obligation to take the time to review legal documents before signing them and, if they do not understand the documents, to hire legal counsel to review them. “I didn’t understand what I was signing” or “I didn’t read the whole thing” will not be a valid defense to the enforcement of the mortgage contract by your lender.
We always encourage people to do everything possible to avoid signing a mortgage loan with a balloon.
We have seen many cases where the lender told the buyer not to worry about the balloon because they can just refinance the loan before it balloons.
That may sound great at the time, but what if you or your spouse lose employment and are running on a single income? What if your credit score drops? If these unfortunate events happen, as they do to so many of us, you may be denied for a refinance.
So let’s say your mortgage balance is $300,000 and you miss the deadline to refinance. The note and mortgage balloons and you send in your next monthly payment. What’s going to happen now?
You will most likely receive a letter from your mortgage company returning your check and telling you that you have to pay $300,000 right away or the lender will foreclose on you. When a lender calls in the entire note and mortgage to be immediately due, this is called “acceleration.” Once your lender accelerates the loan, they will not accept single payments. You can request your lender modify your loan to extend the note term, but the lender is not under an obligation to do so.
A balloon note can be a trap for the unwary and a setup to lose your home. Protect yourself, your family, and your home by trying to steer clear from these not-so-fun balloons.
Ryan C. Torrens, Esq.
Consumer litigation attorney