August 21, 2014
It took longer than I had anticipated but it has now officially arrived – a real life nightmare for thousands of homeowners who simply walked away from their upside-down Florida home. They knew the bank would foreclose but they thought that would be the end of it. Now they realize this is just the beginning, as the mortgage behemoth Fannie Mae has hired creepy debt collector company Dyck O’Neal to pursue deficiency judgments through the Florida courts. The Palm Beach Post reports:
“People are getting served with these deficiency suits and are absolutely shocked,” said Paul Baltrun, director of corporate development for the Law Office of Paul A. Krasker in West Palm Beach. “The size of the judgments — we’re not seeing $30,000 — these are at a minimum of $100,000.”
But there is a silver lining for those of you who are presently upside-down and facing foreclosure. A short sale can provide a full release of liability meaning once it’s closed you no longer owe anything to Fannie Mae or her creepy red headed step-child Dyck O’Neal.
February 18, 2012
The Collection Advisor February 2012 issue brings us some creepy news from debt collectors on Mortgage Deficiency Collections.
“It could be said that some consumers might be in a better position financially post-foreclosure, as they no longer need to worry about making large mortgage payments. Any analysis regarding these deficiencies should begin with a discussion of whether the loan is recourse or non-recourse. A recourse loan is, ‘a loan that allows the lender, if the borrower defaults, not only to attach the collateral but also to seek a judgment against the borrower’s (or guarantor’s) personal assets.’ Blacks Law Dictionary 955-956 (8th ed., West 2004). The majority of states are so-called ‘recourse states’ and permit lenders to pursue a mortgagor personally for a deficiency after sale.”
“An interesting situation potentially arises where a creditor obtains a deficiency judgment against a consumer and places a judicial lien on another piece of real property at which the consumer resides. If the consumer subsequently files for bankruptcy and asserts his or her homestead exemption as to the residence, there is some question as to whether the bankruptcy code allows the consumer to avoid the judicial lien resulting from the deficiency judgment. One bankruptcy court has rules that the language of the bankruptcy code is ambiguous as to whether the judicial lien can be avoided in such a situation, and posited that a public policy concern called the ‘Flow of Capital Purpose’ should prevent avoidance of liens resulting from a deficiency judgment. See In re Crisuolo, 386 B.R. 389 (Banr. D. Conn. 2008).”
The bottom line is that if you own property in a recourse state such as Florida which allows creditors to obtain and pursue deficiency judgments then don’t delay on obtaining a full release of liability through a short sale at this time. Mortgage lenders will allow the debt to be settled with a zero balance now, but if you wait then all you have to look forward to are mortgage deficiency collections.
August 23, 2011
702.06 Deficiency decree; common-law suit to recover deficiency.—In all suits for the foreclosure of mortgages heretofore or hereafter executed the entry of a deficiency decree for any portion of a deficiency, should one exist, shall be within the sound judicial discretion of the court, but the complainant shall also have the right to sue at common law to recover such deficiency, provided no suit at law to recover such deficiency shall be maintained against the original mortgagor in cases where the mortgage is for the purchase price of the property involved and where the original mortgagee becomes the purchaser thereof at foreclosure sale and also is granted a deficiency decree against the original mortgagor.
June 24, 2010
Fannie Mae (FNM/NYSE) announced policy changes designed to encourage borrowers to work with their servicers and pursue alternatives to foreclosure. Defaulting borrowers who walk-away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure. Borrowers who have extenuating circumstances may be eligible for new loan in a shorter timeframe.
“We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, executive vice president for credit portfolio management. “Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting. On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”
Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.
January 29, 2010
Bloomberg – When John King stopped making payments on his home in Coral Gables, Florida, two years ago, he assumed the foreclosure ended his mortgage contract, he said. Last month, a Miami-Dade County court gave collectors permission to pursue him for $44,000 stemming from the default.
King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.
“The big dogs get a bailout, and the little man gets no mercy,” said King, 39, referring to the U.S. government’s rescue of banks and other financial institutions.
While there are no statistics on the number of deficiency judgments approved by courts, the Federal Deposit Insurance Corp. tracks the amount banks collect after defaulted loans were written off.
These mortgage recoveries rose 48 percent to a record $1.01 billion in the first nine months of last year compared with the year-earlier period, according to the Washington-based regulator. Recoveries on defaulted home-equity loans almost doubled to $392 million, the FDIC data shows.
The figures don’t include money retrieved by trusts overseeing mortgage-backed securities, such as the one that holds the loan on King’s former home, or efforts by distressed- asset funds and companies that buy bad loans to profit from collection rights. Judgments such as the one levied against King usually tack on court fees, fines and interest.
‘Next Big Crisis’
Deficiency judgments were rare in the 15 years since the last real estate slump, said Ben Hillard, a former investment banker who now is a real estate and corporate attorney at Hillard & Rogers in Largo, Florida.
“The banks have been too underwater with foreclosures to spend much time on deficiency judgments, but that’s beginning to change,” Hillard said in an interview. “This is going to be the next big crisis.”
Almost 4.5 percent of mortgaged U.S. homes were in foreclosure during the third quarter, the highest rate in the 37 years of tracking the data, the Mortgage Bankers Association said Nov. 19. A record one in every 10 mortgages was at least one payment overdue in the same period, the Washington-based trade group reported.
The Obama administration is seeking to modify as many as 4 million loans by 2012 to prevent foreclosures through the Home Affordable Modification Program, which cuts monthly payments to about a third of borrowers’ income. By the end of December, the program was responsible for more than 850,000 modifications, the Treasury Department said in a Jan. 15 report.
The federal government spent $230 billion in the year ended in September to support homeowners, according to the Congressional Budget Office in Washington. Those efforts didn’t help people who had already walked away from their houses.
In states such as Florida, courts give mortgage holders as long as five years to seek a deficiency judgment and, if granted, up to 20 years to collect. Usually, they have the option of renewing the judgment if it’s not paid off within 20 years.
About a third of U.S. states, including California and Arizona, prohibit collection efforts on primary residences after foreclosure. In some cases, homeowners waive that protection if they refinance. Most states allow collection on unpaid home equity loans.
The laws in states that protect some borrowers stem from the Great Depression in the 1930s, when a lack of bidders at foreclosure auctions caused deficiencies that, with added fees and interest, sometimes were bigger than the original loan amount, according to a 1934 Virginia Law Review article by Sol Phillips Perlman. Today, many courts measure the shortfall using a property’s market value at the time of foreclosure rather than auction results.
The likeliest candidates for deficiency judgments are so- called rational defaults, said Larry Tolchinsky, a real estate attorney in Hallandale Beach, Florida. In those cases, people who are current on their mortgages decide to walk away from a property because its value has sunk so far below their loan balance they have no hope of recouping the loss.
About 21 percent of American homeowners owe more on their mortgages than their properties are worth, according to Zillow.com, a Seattle-based real estate data firm.
“Walking away from a property comes with a cost, especially for people who otherwise have good credit,” Tolchinsky said in an interview. “The bank is going to pull your credit report, and if you’re current on your other bills they are going to come after you and potentially ruin you.”
It’s not just foreclosures that can trigger debt collections. Short sales also may lead to deficiency judgments years after former homeowners have moved on, according to Hillard, the attorney in Largo. In a short sale, lenders agree to let borrowers sell a home for less than the mortgage balance.
“Banks are being very careful to preserve their rights, either outright in the short sale agreement or by using vague language that leaves that door open,” Hillard said. About 90 percent of people who do a short sale think they are “off the hook.”
That was the case when two of his clients, Brigitte and John Howard, sold their home in New Port Richey, Florida, almost two years ago without using a lawyer to check the bank’s short- sale agreement.
“We got a call out of the blue saying we owed $20,000,” said Brigitte Howard, 45. “It was a shock. There was no mention in the short-sale contract that the bank might come after us for the difference.”
The money King owes to the Soundview Home Loan asset-backed security that holds the mortgage on his former Coral Gables condominium consists of $38,000 for unpaid principal and almost $6,000 in legal fees and interest accrued prior to the ruling. According to the judgment, the security can charge 8 percent interest until he pays off the debt.
King, who said his default was caused by a reduction in his income, now rents near Fort Lauderdale, Florida, where he teaches ballroom dancing.
“I thought the foreclosure was the worst of a bad situation, but it’s not,” said King. “The people who got sucked into the real estate bubble are still paying for it, even after they’ve taken our homes.”
November 17, 2009
The Department has already begun requesting or requiring mortgagees to obtain deficiency judgments in instances where the mortgagors are non-occupant owners; have previously defaulted on one or more FHA-insured mortgages resulting in the payment of claim(s); or are “walkaways,” having abandoned their mortgage payment obligations despite their apparent continued ability to pay. This will continue to occur where the pursuit of deficiency judgments is consistent with State law.
HUD ML 89-14
July 31, 2009
I went through a bad divorce that ended with a foreclosure and a deficiency judgement of $90000+.
Would like to purchase another home in a couple of years and I am eligible for a va loan, but the judgement has to be paid or being paid on. The judgement is joint with ex and i can not afford to pay 1/2 of it nor all of it.
Should I go ahead and file bankruptcy and try to repair my credit immediately.
The wait for a va loan after foreclosure is 3 years and 2 years after bankruptcy discharge.
January 15, 2009
My husband died 6 years ago and I have used every resource to stay in our home since it didn’t sell. I’m about $1,000.00 short every month now. I’m looking at foreclosure. I just refinanced in Dec 2009 and have a FHA mortgage. Will I be responsible for the difference of what the house eventually sells for and the balance on the mortgage?
December 17, 2008
August 25, 2008
My lender has finally approved a “Short Sale,” however they will put in writing that they will not be filing a deficiency judgment against me for the difference. They have verbally said they will not be to my broker.
Should I be concerned or accept them on their word. I have already dicussed the tax ramifications and my accountant said I will be fine. I have a second/HELOC that was taken out at the time of purchase which was utilized as the additional 10% of downpayment so I wouldn’t have PMI.
Any advice/suggestions would be appreciated.