https://gotoby.com/wp-content/uploads/2020/10/go-toby-logo.jpg 0 0 Toby Tobin https://gotoby.com/wp-content/uploads/2020/10/go-toby-logo.jpg Toby Tobin2010-07-09 00:00:002021-03-19 14:41:44Borrowers Beware: Firms Profit Off Mortgage Defaults
Borrowers Beware: Firms Profit Off Mortgage Defaults
In Florida, a deficiency judgment must be filed within five years, but the lender has up to 20 years to collect.
Palm Coast, FL – July 9, 2010
By Kimberly Miller – Palm Beach Post Staff Writer
Joshua Rand is the muscle. Not in a busting-skulls, Tony Soprano kind of way.
But he does seek to collect, and sometimes even buys, the debt left by delinquent homeowners who walk away from their mortgages – the same borrowers who often assume that a foreclosure or short sale wipes out their loan balance, ending their liability.
A principal in the New York-based Deficiency Judgment Recovery Network, Rand said he has "hundreds, maybe thousands" of home loans gone sour in Florida that his company, formed in late 2009, is working to collect balances from.
Rand either is hired by lenders to collect the deficiencies for them or his company buys the debt in pools for pennies on the dollar, profiting on the back end by making a borrower pay up.
"People are under the assumption that the banks are so busy modifying home loans that they don’t have the bandwidth or stomach to go after those who are walking away. That’s a bad assumption," said Rand, whose company motto is "We turn shortfalls into windfalls."
A deficiency judgment, or claim, is basically the remainder owed on a home loan when a borrower goes into foreclosure or completes a short sale.
Before the real estate crash, there were relatively few foreclosures and even fewer short sales, so deficiencies were rare.
Now, tens of thousands of defaulted home loans are on bank records. But mired in busted properties, banks still have been unlikely to pursue claims, attorneys say.
That’s where the Deficiency Judgment Recovery Network comes in.
Read More>>>> Palm Beach Post
I can’t imagine that this would be a good investment of either capital or time. By and large most of the deficiencies left behind from defaulted mortgages are large enough that any pursuit would drive someone into a BK and wipe the whole thing out. They may have some luck if the balance were $20k but most of these will be in the 100’s. Even at a monetary cost of to purchase the debt for "pennies on the dollar" or simply partnering with the banks and splitting the recovery there is a massive time investment (and further court costs, etc). I can’t imagine that this is a good investment for any company. Especially in a state like Florida where people are so protected via BK.
These types of ventures are actually extremely profitable. While the article states that this company won’t be going after people who were foreclosed due to unemployment (mening they are going after strategic defaulters), they have up to 20 years to wait on a judgment until someone does have money to get. When someone has a $20,000 second mortgage, a company like this might buy it for about $400-500. IF they can get one former homeowner to agree to pay $5,000 ($500/month for 10 months), you see how the numbers can add up. I am seeing lenders, especially second mortgage holders, suing on the promissory note only, and not bothering with a fruitless foreclosure. They are starting to treat junior mortgages like past due credit card debt.
I agree that the $20k debtors may have some issues. Keep in mind that the majority of these new groups are not buying the judgments, they are purchasing the right to get a judgment. They only get the benefit of the 20-years to collect after the courts award them a judgment. So after they make a deal with the lender they then go to court which takes time and money. While the "show me the note" defense may not hold up so well during a foreclosure, I can assure you that it would be a very valid defense in a deficiency case. Without the note the court would have no idea what the judgment amount should be. Of course these companies don’t have to worry about that part of the law if the defendant doesn’t show up to defend. If debtors decide to start standing up for their rights these types of companies will spend a fortune on court and legal fees. If they are able to get a judgment and it is large enough then more BK’s will go through the courts rendering their judgment null and void.
Historically this has been a profitable venture but then again, we have never experienced anything like this market in history. The rules to everything has changed.