Losing a home to foreclosure is one of the toughest things most families ever endure. Usually, though, people assume once the property is repossessed and sold at auction, they can begin to put the whole mess behind them.
Not so fast.
Those who have worked hard to rebuild their credit and their lives get hit with this: Debt collectors, hounding them for the remaining balance on their mortgage. Their bank accounts are frozen. Their wages are garnished. Their assets are seized.
Our Miami foreclosure defense attorneys are increasingly seeing this tactic deployed, especially with mortgages once held by the two government-operated housing finance firms, Freddie Mac and Fannie Mae.
It’s called a deficiency judgment. It’s perfectly legal, even when the default occurred many years ago. If you’re in this situation, you cannot afford to ignore it. An experienced attorney can help you formulate a strategy to fight back.
Although deficiency judgments have been allowed for a long time, they weren’t regularly sought prior to the burst of the housing bubble. Before then, the banks saw deficiency judgments mostly as a lost cause. They were expensive to bring, and when they were initiated, they tended to garner a lot of bad publicity.
There are some financial institutions that still generally don’t pursue deficiency judgment, although they reserve the right to do so.
What changed was that the housing crisis resulted in lenders being burdened with more than $1 trillion in foreclosed loans. This has meant significant losses for these firms. (Not that we have much sympathy for them, considering the primary reason behind most foreclosures had to do with the fact that buyers were lured by lenders into accepting debt they couldn’t actually afford, and lenders made a killing bundling those toxic loans and selling them off to third-party investors – including taxpayers.)
Still, lenders are seeing an opportunity as the economy has begun to stabilize. Many people whose homes were foreclosed have gotten new jobs. Old debts have been paid off. In a few cases, they have even been able to purchase a new home. Lenders want borrowers to pay back what they owe – which is usually tens of thousands if not hundreds of thousands of dollars.
For example, let’s say you took out a $200,000 loan, putting $25,000 down. You defaulted not long after. The bank foreclosed, and sold the house for $125,000 – far less than your loan amount. You never got back your down payment. Still, you could be facing a potential deficiency judgment of $50,000.
Of course, actions like this have the effect of knocking down people who were just beginning to dust themselves off after the economic collapse. Some bank advocates say it’s only right that borrowers should pay what they owe, especially because a fair number of former homeowners made the strategic decision to walk away from properties that were deeply underwater. But this ignores the fact that the banks were highly culpable in this mess to start. Plus, borrowers are often totally unprepared for a deficiency judgment, and it could put them at risk of losing their new home.
If the amount of the deficiency is significant, bankruptcy could be an option to wipe clean those debts. However, that should only be a last resort, as it does major damage to one’s credit.
Many borrowers end up negotiating some kind of repayment plan with the bank for a lesser amount. However, this should always be done in consultation with an experienced attorney, who is familiar with the system and can advocate for the best deal for you.
There may be other options as well, particularly if the lenders or debt collection agencies aren’t following fair practices under the Fair Debt Collection Practices Act. Violations can be used as leverage in setting the claim aside.
If you’re battling foreclosure in Miami or the surrounding areas contact Bruce Jacobs & Associates for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.
Americans face post-foreclosure hell as wages garnished, assets seized, Oct. 14, 2014, By Michael Conlin, Reuters
More Blog Entries:
CFPB Cracks Down on Bad Banking Practices, Oct. 15, 2014, Miami Foreclosure Lawyer Blog