Lenders Pursue Mortgage Payoffs Long After Homeowners Default
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.
Palm Coast, FL – January 28, 2010
By Kathleen M. Howley: Bloomberg.com
Jan. 28 (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.
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.
Toby’s Commentary: This story sheds light on the "between a rock and a hard place" position in which people are finding themselves. It also highlights good reasons to consult an attorney.
What’s the point
So the banks are now spending more tax dollars getting a judgment against someone who can’t or won’t pay their mortgage? So a massive judgment is awarded then what…..bankruptcy! A personal BK at that point is a no-brainer. Your credit is already shot so to preserve your current income and retirement people will move into a BK and have credit extended to them again in two years after a filing.
This just seems like a waste of more resources to me.
insolvency
I have heard that if the former owner can prove financial insolvency at the time of the foreclosure/ short sale closing, then the lender has no deficiancy recourse. Any thoughts?
Deficiency judgments
This story highlights a serious situation that suggests consumers are not getting the education in mortgage law that they need before taking out a loan.
I’ve talked to countless property owners who, like the gentleman quoted in the story, think that a foreclosure, a deed in lieu of foreclosure or a short sale ends any financial liability they may have to their lender. As the story points out, this is not true unless the lender agrees, as part of the process, not to pursue a deficiency judgment for the balance due under the promissory note that borrowers sign when taking out the loan.
There are many resources available to educate borrowers on their rights and responsibilities in foreclosure. Anyone faced with this process needs to take the time to get the necessary information that will allow them to decide what is in their best interest.
Just walking away from a property and a mortgage debt, hoping they will never hear from the lender again, is an invitation to even more trouble in the future.