House Is Gone but Debt Lives On - banks now going after homeowners who walk away

[Liberal_in_LA]

House Is Gone but Debt Lives On

LEHIGH ACRES, Fla.—Joseph Reilly lost his vacation home here last year when he was out of work and stopped paying his mortgage. The bank took the house and sold it. Mr. Reilly thought that was the end of it.

In June, he learned otherwise. A phone call informed him of a court judgment against him for $192,576.71.

It turned out that at a foreclosure sale, his former house fetched less than a quarter of what Mr. Reilly owed on it. His bank sued him for the rest.

The result was a foreclosure hangover that homeowners rarely anticipate but increasingly face: a "deficiency judgment."

------------------

"Now there are foreclosures that leave banks holding the bag on more than $100,000 in debt," says Michael Cramer, president and chief executive of Dyck O'Neal Inc., an Arlington, Texas, firm that invests in debt. "Before, it didn't make sense to expend the resources to go after borrowers; now it doesn't make sense not to."

---------------

Investors know that most states allow up to 20 years to try to collect the debts, ample time for the borrowers to get back on their feet. Meanwhile, the debts grow at about an 8% interest rate, depending on the state.

http://online.wsj.com/article/SB10001424053111904060604576572532029526792.html?mod=WSJ_article_forsub

[ixion]

1. you been pWned by the banksters

Welcome to indentured servitude. :argh:

[truedelphi]

2. And yet even some here on DU ask why the protesters are

There on Wall Street. Or else, they taunt the protesters with jiobes like "simple minded."

Why are the protesters there? It's 'cuz the economy has been rigged, Stupid.

And our democracy has become an oligarchy, right under our noses, and it's all been done in the name of "Free Market Capitalism."

[JDPriestly]

14. Somebody should start a march on the Department of Economics at

the University of Chicago. Now that might help matters. Some sit-ins there would probably get someone's attention.

[Occulus]

55. Now there's one institution of "higher" learning I'd love to see shut down.

[butterfly77]

93. They should pay a visit.,,

to this guy while they are there...http://youtu.be/or-EKjfVCoA

[dana_b]

15. "the economy has been rigged"

yep! this is a sickness in our country. Attack those who are struggling and squeeze them until they can't breathe.

[truedelphi]

29. And then when we dial "911" to get paramedics

To do resuscitation, we are told the emergency vehicle is requiring them to pull over - and Boy oh Boy if that ain't class warfare!

[hfojvt]

60. struggling?

I guess he is struggling now, but he must not have been struggling when he bought a $260,000 VACATION home.

One that was apparently sold at a foreclosure auction for something like $50,000.

I guess he would have been smarter to put it on the market, then he'd owe $100,000 less.

[truedelphi]

71. Way back in 1980,

I had a real estate license in 1980.

Back then, Glass Steagall was in place and as a result, the banking industry was kept out of the financial end of things. A bank profited only by selling a mortgage, and interest rates were high.

A person buying a house was expected to have at least twenty percent down, and often thirty percent was the requirement.


And although interest rates plummeted over the next twenty years, at least people were still required to have some money down. And buyers, in general, were never told that the price of housing could "only go up."

Then when the 1999 Bank "Reform" Act went through Congress, removing Glass Steagall, the banks were able to become financial dealers.

Interest rates were low and a bubble market in housing was created. No money down real estate deals became the norm.

Americans are not able to comprehend the notion that a person must buy low and sell high. They want to buy something only when the profit being "guaranteed" is on the astronomical side, and so they only buy things during a "bubble."

So I do share your sense of outrage. The "bubble" mentality was one reason I decided I couldn't handle RE sales. I got tired of losing a sale to a client to another Realtor. I would offer a definite eight thousand dollar profit to the buyer on a particular house, well built, and perfect in terms of passing inspection.

But the buyer would make an offer on another realtor's showing of a house since that house was worth "tens of thousands of dollars more" than its appraised price.

That buyer would call me several months down the road in tears because the ceiling in that "great buy of a home" had collapsed, with the upstairs bathroom landing in the living room. And the firm that the RE person represented had left the state, as had the builder of said home, so there wasn't anyone for him to sue.

However, although there has been a huge loss to the GDP due to the fall in housing prices, our economic situation is really in peril because of the one half of a Quadrillion dollars worth of losses to our economy that occurred as banks/financial firms created weird and exotic items like CDS' and CDO's and what not - and when those all fell apart, so did the economy. That is the dirty lil secret that exists.

The "poor people" making bad decisions to overextend themselves in the housing bubble is like 2 percent (at the most) of the overall damage inflicted on the economy. And while the person buying during the bubble might have lost their shirt, the Biggest Financial Firms are sitting a at least nine to fourteen trillions of dollars of tax payer money that the Paulson/Bernancke/Geithner trio has digitally created and handed off to their friends on Wall Street. And the trio's moves have destroyed Main Street, while allowing the fat cats to continue to do "bubbles" - the current "bubble" being banks buying up other banks.

[madrchsod]

3. file chapter 7..they won`t get a cent.

[Major Nikon]

5. That's not necessarily true

I suspect the reason why the bank is suing him in the first place is because he has considerable assets. Banks know you can't get blood out of a rock.

[Vincardog]

9. II suspect the bank would go after him if his assets were a goodwill blanket and some used shoes.

[Major Nikon]

12. You really think banks are that stupid?

If you read farther down in the WSJ article, you'll find this little jewel:

Credit unions and smaller banks are the most aggressive pursuers of deficiency judgments, a review of court records in several states shows.

[Vincardog]

13. I really believe that banks are that GREEDY and would never let an opportunity to enhance revenue by

[Major Nikon]

24. How does it enhance revenue by suing people who have nothing?

Believe it or not, foreclosure fraud does happen on both sides. And many of the people who are walking away from these homes have multiple properties besides their primary residence.

[Vincardog]

35. Ask them

[Major Nikon]

36. Now we're back to post #12

I'm not saying your assertion isn't correct, I just would like a reasonable answer as to why you think this is happening, or at the very least evidence that it actually is.

[StarsInHerHair]

40. how does it enhance trust of Banksters when they foreclose on homes paid in full?

[Major Nikon]

44. Sounds like a whole different subject

But I'd say the answer to the question is it doesn't and represents a public relations disaster for them.

[Kurovski]

45. Since the debt can stand for up to twenty years...

they are basing it on future earnings, which can also include up to 8% in interest on the debt over that period.

I believe that's the plan as expressed in the article. I might have missed something.

[Major Nikon]

85. The remedy for the person in default would be to file chapter 7

So it's really an exercise in futility for the bank, unless they know the person has assets they can go after.

[exboyfil]

52. I have a collection agency who has sued my grandma

for a $2,000 credit card debt. Lets see she has $50 in the bank, gets on Social Security and Railroad Retirement which is not subject to garnishment, and she is in a nursing home under Medicaid which expects all but $50 of her Social Security and Railroad Retirement. I have her Power of Attorney, and I explained all of these details to the court in a response to the summons.

She is also confined to a wheel chair and bed in the nursing home, 88 years old, and does not even remember this credit card or much else. She had this bill when she came under my care four years ago.

She has been told to attend a mediation hearing regarding the debt. The only time she leaves the nursing home is to go to the hospital which she goes two about one every four months.

[Hassin Bin Sober]

66. "Credit unions and smaller banks are the most aggressive pursuers of deficiency judgments."

People need to be reminded of this when they "put all their eggs in one basket" and do all their banking and borrowing at their CU.

Credit unions are more likely to exercise "right of set-off" also and snatch your cash accounts in the event of a defaulted loan. Credit unions are smaller and less likely to let a bad loan fall through the cracks without serious loss mitigation attempts.

Right of set-off is the right to attach any other accounts held in the bank. And it doesn't need a court order. You can be late on a payment and the bank will make the payment for you or clean you out in the event of default.

[socialist_n_TN]

58. And you'd be correct. These things are done

as a matter of course. It's a fishing expedition to catch the ones who actually DO have some assets. It's worth a trip to a bankruptcy attorney in any case.

[Hassin Bin Sober]

63. First off, it costs peanuts for a bank who probably has a an attorney parked in the court, to file

... and get an un-contested deficiency judgment.

The bank may not be presently going after the former homeowner. The debt may have been sold for pennies on the dollar to a collection agency. Or perhaps sold with a shared revenue agreement based on the "throw shit against the was and she if it sticks" principle.

Either way, the fact he is being pursued doesn't necessarily mean he has assets.

[Hassin Bin Sober]

67. How many assets can he have seeing he is STILL out of work and considering BK?

[RegieRocker]

87. If you can file a 7 then they can get no money.

[JVS]

6. That only works if you actually are broke. In these cases it's people who are protecting their...

assets by strategic default.

[Lionessa]

17. Exactly. Even so the deal has been somewhat understood that the house

and only the house was collateral, so I can embrace the unfairness aspect to this. For example if one defaults on a car loan and the vehicle is repossessed, does the loan company also come after one for the balance of the value of the car vs the amount left on the loan. I haven't heard of such, so why do mortgage loans get different treatment?

[Liberal_in_LA]

20. good question. Not sure. I heard they have to give the car buyer the difference

if they sell it for more than the balance owed.

[Mnemosyne]

23. They do go after them for any amount still owed after sale of vehicle. n/t

[socialist_n_TN]

59. Correct.

nm

[Mnemosyne]

77. And they sell them as cheaply as possible to do it, imho. n/t

[socialist_n_TN]

94. Yep. At auction without a floor level bid

is by definition going to be as cheaply as possible.

[JVS]

27. Since the collateral was traditionally worth more than the debt in the past, such a situation...

seldom arose in the past.

And I wouldn't be so sure that the house and only the house is part of the collateral. There's a reason that mortgage documents are upwards of 100 pages and it isn't to keep the lawyers out of the local pub. The fine print may very well mention the possibility of such contingencies and similar.

[tammywammy]

28. Yes, they will go for the remaining balance on a car loan

If the car is sold at auction for less than the remaining loan amount.

[Major Nikon]

32. Somewhat is the key word here

Most people assume that the moral hazard exists only on behalf of the lender. However, when you sign the promissory note on your mortgage, you are essentially agreeing to repayment to the best of your ability.

The same thing could happen on a car loan, but it doesn't very often because the difference between the loan balance and the equity of the asset is generally so small that it isn't worth the cost of litigation.

[StarsInHerHair]

41. it sounds like that's what they're doing, the car co. not far behind now

[some guy]

80. Yes.

At least some times. Long ago, I bought a vehicle I couldn't afford (I was young and stupid) - it got repossessed, and they billed me for the difference between what I owed and what they resold it for. I did pay that.

[notadmblnd]

92. yes they do.

finance companies will repossess the car, sell it, and bill for the difference.

[Major Nikon]

4. Somehow I find it hard to feel sorry for this guy

If someone loses everything they have and then the bank sues them, I can see the reason for outrage. It doesn't sound like this is the case with this guy. If he had those kind of assets, he could have filed bankruptcy and would never had to worry about his vacation home again. Sounds like he chose to walk away because his investment in a 2nd home didn't pan out, now he wants the bank to assume his loss while he gets to keep the rest of his assets.

[banned from Kos]

8. excellent point -- Canada has full recourse on your primary mortgage

Our mortgage laws are downright consumer friendly compared to Canada.

Walking away from a vacation home loss would be unthinkable there.

[jayfish]

10. And that's just the way they want it.

Report on cases with less than sympathetic subjects. Then when this practice starts en-mass you have the preconceived notion of "somehow i find it hard to feel sorry for this guy" ready to go. They are devious manipulators.

[dana_b]

16. and it obviously works. n/t

[Skittles]

18. I AGREE

I have noticed the corporate whore media tends to use ridiculous scenarios to turn public opinion in the banks' favor

[former9thward]

39. This is not a "practice", it is a standard mortgage contract.

The mortgage agreement that you sign spells out the rights and responsibilities of both sides. You should not sign a #200,000 contract without reading it and understanding all of it.

[exelwood]

21. I think the point is the bank plans to get the judgement...

...and move into your financial life for the next 20 years on the off chance you ever get right again. Sure, if your guy is just blowing off his debt on a second home with no repercussion against other assets yeah, go get 'em but for the guy who is already ruined this means bankruptcy as the only means of getting out from under this.

I'm big on taking care of your business but this is exactly the situation that Democrats are supposed to be better about, millions of people lost their homes, millions of people lost their jobs, millions of people could have this hanging over their heads for years.

Why can't those people be helped? This is what government is for, why can't they write a law for a "mini-bankruptcy", if you lost your home due to the economic collapse of 2008 and can prove it, you get to declare that loss and move on. The fucking bank has already gotten their tax break on your default anyway.

[Major Nikon]

26. There's plenty of people who need help and deserve it

No question about that.

There's also those who are using the crisis to unload bad investments at others expense.

[Supersedeas]

48. the bank loaned him the money based on the appraised value at the time

the bank also took a risk that it would not sell for the appraised amount

[Major Nikon]

49. Only banks take the risk for real estate investments?

Sounds like heads I win, tales you lose. Sign me up!

Seriously, though you might want to read #38. Seems to shed a lot more light on this.

[EFerrari]

50. Or maybe he didn't have the filing fee. n/t

[blueamy66]

64. I'm with ya.

It's hard to feel sorry for someone who loses their "vacation home" because they didn't pay their mortgage.

[Hassin Bin Sober]

65. Who don't you fell sorry for? You mean the guy in the OP who lost his job and is till unemployed?

The guy considering chapter 7? That guy?

[Major Nikon]

68. Nothing says he's still unemployed

He was a mortgage broker and knew the consequences of default. He claims he has no assets, but he's still paying the mortgage on his primary residence, so obviously he has some type of means. He got a construction loan in 2005 for $223K, but the house wasn't completed until 2010. The house sells in foreclosure for 1/4 of the loan. How does that happen if fraud wasn't involved? And why didn't he file for bankruptcy in 2010? He says it's because he doesn't have any other assets so he didn't think they would come after him. What? Certainly he knew he would be liable for years afterward, so if you believe his story he had nothing to lose and everything to gain by filing chapter 7. Sounds like he didn't want a judge pouring over his financial dealings.

So how am I supposed to feel sorry for this guy? At the very best he was a very well paid insider who very well knew the consequences of his actions. At worst he was a crook who was gaming the system and didn't think he would get caught. I'll save my sympathy for people who are genuine victims of the mortgage crisis and lost the roof over their head.

[Hassin Bin Sober]

69. ?

In Mr. Reilly's case, "there's not a snowball's chance in hell that we can pay" the deficiency judgment, says the 39-year-old man, who remains unemployed. He says he is going to speak to a lawyer about declaring bankruptcy next week, in an effort to escape the debt. The lender that obtained the judgment against him, Great Western Bank Corp. of Sioux Falls, S.D., declined to comment.

[Major Nikon]

73. Missed that

But it does say he's still paying his primary mortgage so he does have income from somewhere, so again not really a sympathy case IMO.

[Hassin Bin Sober]

75. Yeah, I bet he's livin' large on those unemployment benefits LOL. Maybe we should drug test him too.

Yeah, you miss. You miss a lot.

You are aware, aren't you, that millions of Americans are scraping by on unemployment benefits? And here's a clue for you - not all of them are losing their primary residences. Yet.

Union yes my ass.

I won't even get in to the extreme ignorance displayed in this thread regarding judgments and collections. Read up on what's going on in the industry. There's been plenty posted on DU.

[Major Nikon]

76. Sorry, I mistook you for someone who could discuss a topic with civility and reason

Won't happen again.

Perhaps you're willing to give Murdoch's rags a free pass without at least a hint of skepticism, but believe it or not there are some who don't possess such childlike naivete.

[Hassin Bin Sober]

78. Hey, you're the one basing your "opinion" on a wrong set of facts.

But by golly, yer "gut" still tell you this guy deserves no sympathy. And I'm naive?

[Major Nikon]

82. What wrong set of facts?

I'm not the one pulling "facts" out of my ass and then spewing brain dead dichotomous nonsense. You have no way of knowing if this guy is is on unemployment or what his situation is, yet you pretend to have all the information.

Here's some reading up for ya. The FBI characterizes mortgage fraud as epidemic and often involves mortgage brokers (listed specifically as common perps), Florida is the #2 state for such fraud, it often involves builder bailout schemes and investment properties, and Tampa, right where this guy lives, is one of the most active sectors in the nation for this type of fraud.
http://www.fbi.gov/stats-services/publications/mortgage-fraud-2010

So here's a mortgage broker building a 'vacation' home which took 5 years to build (for some unknown reason) who lives in one of the most active areas for mortgage fraud. But you don't have any questions about this because you have all the answers.

I'm not basing any opinion on anything. I'm asking questions that can't be answered by the article and would look quite suspicious to a reasonable person. I'm saying I don't have enough information to feel sorry for this guy. But apparently somehow you mysteriously have all the answers. And what is your exclusive source of information? Murdoch's Newscorp. The same misinformation network that tried to convince everyone the subprime mortgage crisis was caused by minorities defaulting on section 8 loans.

So yes if you are convinced Murdoch doesn't have an agenda in this and definitely is telling you the truth, you are naive. Damn naive even.

If you want to shed a tear for a mortgage broker who lost his vacation home, go right ahead. I'll save mine for people I know deserve it.

Cheers!

[Hassin Bin Sober]

89. "I'm not basing any opinion on anything." LOL. I guess we agree on that.

You make it up as you go along.

What a bizarre little sub-thread this turned out to be. Arguing with your "gut" is a lot of fun.

First you say you don't feel sorry for the man in the OP because he must have assets and he is still working. When it's pointed out he isn't working, you now have him on the FBI's 10 most wanted list for fraud.

You are running around this thread saying banks don't sue unless a person has assets. WRONG. And demonstrably so. But don't let that stop you. You are on a roll.

You make asinine statements that car lenders don't sue because the "amount is so low." WRONG. And demonstrably so. Ignorance on parade.

I've spent 20 plus years in the consumer lending business (including time in the car AND mortgage business) so I have a little insight. To say that this guy somehow defrauded the out of state bank on a construction loan because he was a broker is asinine beyond belief. Anyone with an inkling of knowledge about the business knows what's involved in the process and HOW MUCH MORE STRINGENT the guidelines get when an employee is involved in the transaction. What's his end? A foreclosure and a trip to bankruptcy court? LOL. Ok. But you've jumped on the band-wagon of some clown in this thread that says lenders almost never go after anyone for deficiency unless there is fraud involved and also the time line means this MUST be fraud - demonstrating ignorance of time involved to secure a construction loan and have the house built during a construction boom, default, and then have the house work it's way through a foreclosure boom. Nope - gotta be fraud. That's what yer gut tells ya.

People who defraud the system, for the most part, don't don't make themselves part of the transaction. And they certainly don't do it on brokered construction loans using their own name and social security number.

You should read up a little on the exploding collections industry that's hinted at in this article. Then read up on the tactics being used to collect, even SMALL amounts, from people with no assets. Tactics that include aggressive lawsuits and even more aggressive post judgment discovery and mandatory court ordered payments that land people in jail.

Yep debtor's prisons are making a comeback. And all it takes is for clowns to read an article by the WSJ written about the less sympathetic among us at to throw in with the debt collectors and the banks. Because the WSJ plays to their greed side that makes them all angry inside when they feel some other guy is getting off Scott free or getting something they are not getting.

[Major Nikon]

90. You really think misrepresenting what someone said improves your credibility?

Quite the reverse is true, actually.

You accuse me of making it up as I go along as you keep making it up as you go along.

Brilliant!

Examples just within your last post:

First you say you don't feel sorry for the man in the OP because he must have assets and he is still working. When it's pointed out he isn't working...

I never claimed he wasn't working, but it turns out this guy IS working, as of at least June of this year when these records were updated, which means he lied to the WSJ. And he's not working at a McDonalds either. He's the director of a mid-sized corporation. Found this with a 10 second google on the guy's name and city which the WSJ could and should have done. Makes you wonder what else he's lying about, at least those who aren't so naive as to believe everything Murdoch tells them. But if you don't have an answer you make it up as you go along!
http://www.corporationwiki.com/Florida/Odessa/joseph-reilly-P1234283.aspx

You are running around this thread saying banks don't sue unless a person has assets.

I'm not saying banks do anything. I'm asking why would they. I guess you can't differentiate between an assertion and a question, or you'll just make up it up as you go along!

You make asinine statements that car lenders don't sue because the "amount is so low."

I'm not saying car lenders don't sue on an upside down loan, I'm saying it doesn't happen very often, in response to someone who claimed they don't sue. Again, points to your lack of comprehension skills, your willingness to sling bullshit, and your flagrant nutbaggery. Once again you're making it up as you go along!

You're getting worked up into quite a rage and way too nutty for my tastes. Furthermore I'm not going to continue to argue with someone who has to invent facts and lie about what someone said in order to make their arguments. I don't play those childish games. Go find someone else more on par with your lack of intellect, mental stability, and maturity. Welcome to my ignore list. Enjoy the ride.

[Hassin Bin Sober]

95. LOL. So you google a generic name like Joseph Reilly and find a match and declare it the person ...

... in the OP? :rofl: Yeah, he went from unemployed mortgage broker to DIRECTOR at a "mid-sized corporation"

I'm not saying banks do anything. I'm asking why would they. I guess you can't differentiate between an assertion and a question, or you'll just make up it up as you go along!

Bullshit. You made an assertion and then, in argument OF YOUR POSITION, you asked a rhetorical question to bolster your position. The record is clear.

Here:

(post #5) I suspect the reason why the bank is suing him in the first place is because he has considerable assets. Banks know you can't get blood out of a rock.

(post #24)How does it enhance revenue by suing people who have nothing?
Believe it or not, foreclosure fraud does happen on both sides. And many of the people who are walking away from these homes have multiple properties besides their primary residence.


(post #85) The remedy for the person in default would be to file chapter 7
So it's really an exercise in futility for the bank, unless they know the person has assets they can go after.

[NNN0LHI]

7. I think there are only a couple of states where it doesn't work like this

S. Dakota and Texas maybe?

Don

[jayfish]

11. In Michigan, I believe, it depends on how the foreclosure is carried out.

Judicial or non-judicial.

[kelly1mm]

19. Can someone explain the outrage here? I am not understanding it.

People bought a property for x.
Loan for x was secured by the house with any shortfall upon foreclosure sale due from buyer (or if there was a surplus that would go to the buyer).
They stopped paying their payments as a strategic default.
House was sold at foreclosure sale for x-y.
Person now owes y/

If they really are in hard times they should file for bankruptcy and get rid of "y".
If they have assets then they should have done more research about what would have happened when they strategically defaulted.

I am not understanding why everyone is upset about this.

[banned from Kos]

22. On DU (and similar boards) bankers are always guilty - even moreso than Yemen terrorists

now in the Real World people don't think like this.

Due process is a selective thing (note - I am an ACLU donor and do not agree).

[Nye Bevan]

42. In many states ("non-recourse states") it doesn't work like that,

at least for a primary residence. In these states if a foreclosure takes place the bank cannot pursue the homeowner for the difference, even if he is a multi-millionaire. People who are used to this law may be outraged when they hear about situations like that in the OP.

[RegieRocker]

88. Unbelievable

They took a loan on a house that is now worth considerably less. If the house was worth what they paid for it they would owe no money. What caused this? Banks, Wall Street, the Fed and all those behind the bailouts. The problem was never home defaults, it was derivatives. Unfortunately most fell for it hook, line and sinker. Thee was only 70 billion worth of real estate in default in 2008. They have paid out over 16 trillion dollars of your money to cover their arses to foreign investors around the world. At who's expense? Yours and mine and that includes the devaluation of your home value.

[truedelphi]

72. I have heard that in Florida, if you handle the bankrupcy legal filings

Correctly,you can keep your "personal" home, and it can be worth millions of dollars.

One reason that someone like OJ Simpson moved there - he could keep any assets tied up in his home away from the "clutches" of Ron Goldman's family.

[Fire Walk With Me]

25. Find an #Occupy in your area or send food and supplies to one. Stop the banks!

[flvegan]

30. I'm seeing it more and more here in Florida.

LOTS more than say, even a year ago.

[Liberal_in_LA]

31. more of what? Foreclosures or the bank going after 'walk aways"?

[flvegan]

37. Banks going after borrowers post-foreclosure.

Used to be they just got the property and that was that. Now, they'll seek deficiency judgment or even file an additional suit after they sell it for whatever loss they took. Certify the judgment and it attaches to any property they own for the next 20 years (if they follow FS 55.10).

[coalition_unwilling]

86. I thought Florida (like California) was a 'non-recourse' state, meaning

that the bank can only foreclose on the property and take possession of the property, in the event of default???? In other words, in the non-recourse states, banks and mortgage holders cannot go after the mortgagee for anything beyond the property itself????

[JVS]

34. The article says they have 5 years to try to collect, so time is wasting for the big batch of 2008

[begin_within]

33. The bank should just sell the house for whatever they are owed.

And if they can't get that price for the house, too bad.

That's the risk you take when you play around in the housing market.

I wouldn't take a mortgage in a state that allowed the bank to get a judgement against the borrower beyond giving the bank the house.

[Yo_Mama]

38. Rethink your attitude

Almost always, a deficiency judgment is pursued when the creditor is holding a non-purchase-money loan. In other words, the borrower refinanced and cashed out (borrowed more money) or borrowed more money on a second or third lien. In the majority of the states, fraud or cashing out on the home are the only circumstances on which the creditor can seek a deficiency judgment on a foreclosed primary residence. In many states that do allow it and have a two tier foreclosure system (non-judicial and judicial), the creditor can only seek a deficiency judgment by going through court. That is more time-consuming and more costly.

Deficiency judgments are also pursued on business (investment) loans. In that case it is a business deal and the borrower has signed a note promising to pay the loan, not just pay the loan or give back the house. Those borrowers do not generally have protection against deficiency judgments in state court.

It's also only pursued when the money can reasonably be expected to be collected, i.e. the borrower has other non-retirement assets, or when someone has committed fraud or highly suspect dealings. Think about it. The article observes that most of these deficiency judgments are being sold for 2 cents on the dollar, or 2% of the deficiency judgment. You are not going to seek a deficiency judgment generally if it is going to cost you more money than you can ever get out of it. You will pursue them if it is the only legal avenue to punish what you believe is fraud.

I don't see why the creditor should assume the loss when the borrower has either done something very fishy or has cashed-out on the home and then defaulted. The majority of the time, no deficiency judgment is sought on a primary even if it was cashed out.

So there is no reason to fear an epic run of these.

The article attempts to portray a wave of these actions, citing 172 deficiency judgments in Lee County Florida, up 34% from last year. Here is a site on which you can see currently active foreclosures in Lee County, Florida:
http://www.foreclosurefreesearch.com/search.html?st=fl&cno=071&z=&tab=f

Note the number of foreclosures listed - 2,711. That makes the deficiency judgment/foreclosure ratio much less than 6% (some foreclosures are not on the list any more). Note also the examples. The first guy got sued over a vacation home, and it looks like it was really a spec buy. Yeah, he didn't cash out - the money was a construction loan. And you have to read quite a way through the article to find out that he was a mortgage broker, aka an insider, and knew how to work the system. So the house was sold for less than 80K? Something's wrong - fraudulent appraisal? Also, do you know how much mortgage brokers were making? How is it that he doesn't have any assets? Finally, this certainly LOOKS like he never planned to live there. He doesn't say when he was laid off, but the article says that the foreclosure was in July 2010, and the original construction loan was taken out in 2005, and that he was laid off "just as construction was being finished". Either this was the longest construction cycle in the history of Florida or he got laid off years ago and defaulted years ago. He's still current on his primary residence, so he has money coming from somewhere. This looks very suspicious.

The second guy bought another house and then defaulted on his original mortgage. That's not right - he almost certainly could pay the mortgage but decided not to. He clearly didn't default on the first house and then get a mortgage for the second house - if delinquency had already been reported he wouldn't have gotten the mortgage on the second house. No, he deliberately kept up his payments on the house he intended to dump so that he could get another mortgage. He also didn't try to work with the bank and resolve the situation - he just bought the other house and dumped his first house. He thought he was being really, really clever, but now the creditor is going to get all the equity he builds up in the new house. I call this cosmic justice. If he had been honest about it - had defaulted on the first house, taken the credit hit, done a DIL or short sale, and then waited until he could qualify for another mortgage, this wouldn't have happened.

Another person cited in the article bought four houses on spec (10K down) and defaulted on all four of them. That was a plain and simple business deal, and when you sign a business loan promising to pay and then walk away from the deal, do not be surprised if the creditor you stiffed uses all its legal options. She probably signed for occupancy loans (represented on the paperwork that she intended to buy these as a secondary or primary residence). If so, she very obviously committed fraud. She says she expected to flip the homes - all four of them. And she said she was taken advantage of by the lender???? Really? A migrant granny retired IBM programmer. Since IBM is well known for only hiring ignorant, half-illiterate programmers, perhaps she wants us to believe that she couldn't even read the paperwork she signed? The reason I think she signed fraudulent loan apps is this:

A credit union, after selling one of the foreclosed houses for less than the debt on it, obtained a deficiency judgment against Ms. Ingham for $181,059.54. She worries she could face such judgments on the other properties, too.

Credit unions should not be in the business of financing investment RE, and I very much doubt this one was. They make home loans. I bet this CU has a loan app that says she was buying the home for personal use. I'd chase her for this one too - I have no sympathy for her. Also it sounds like the loan apps were made to four different creditors just about simultaneously, so none of them would realize that the lady was really buying options on four investment properties. Investment loans are subjected to different terms, much higher levels of scrutiny, higher down payments and higher interest rates. This looks like loan fraud, and if so, technically this lady committed a federal crime and is legally liable for years in jail. She's lucky she is only getting slapped with deficiency judgments.

The chance of your average person getting stuck with a deficiency judgment on their residence on a purchase-money loan are just about nil unless the loan appears fraudulent even if state law permits it are about nil. But if you seem to have committed fraud or misdealing of one type or another, that's not true. It's also not true if you are an industry insider, because creditors suspect that you knew exactly what you were doing.

Note that most of these are CUs and CBs, and that is always true. DU loves credit unions, but when credit unions get stuck like this, all their members suffer.

[Major Nikon]

47. A good bit of information there

Thanks for taking the time to go into detail.

This begs the question as to why the WSJ would publish such a story. Either it's very poorly researched, or it's trying to garner sympathy for real estate investors by trying to portray them as helpless victims of the mortgage crisis. I suspect the latter.

[Yo_Mama]

53. I was wondering the same thing!

The people who got really abused in this are the people who just wanted to buy a house to live in, just as their parents and grandparents did, or worse yet, those who are the first generation out of poverty or first-gen immigrants, who saved up some money, bought a house and are now living the American Nightmare.

Phrases such as "her former neighbor" to describe a woman who was buying four houses to flip betray an interesting bias!

Standards for granting a new mortgage after foreclosure as long as the person appeared to be honest about it have been loosened a lot, but I don't think people who abused the system deserve the same compassion, and I think it is important to maintain the distinction.

By failing to tell the truth - that very few homeowners will ever face this penalty - I suspect the WSJ is trying to advocate for "Persons of Money".

[Hassin Bin Sober]

79. "In the majority of the states, fraud or cashing out on the home are the only circumstances on ...

..which the creditor can seek a deficiency judgment on a foreclosed primary residence."

I don't think that is correct. Most states CAN get a deficiency judgment regardless of original loan purpose.

[Sen. Walter Sobchak]

83. The unsettled legal question is the saleability of deficiencies

Not of deficiency judgments but of the deficiencies themselves. There are very few deficiencies that are worth the bank attempting to collect on their own. The junk debt lawsuit mills are another matter. The unsettled question is could a junk debt buyer buy the deficiency and then have standing to obtain a deficiency judgment on which to collect.

That could take the issue in another direction entirely.

[Major Nikon]

96. I have a different take on it

What would be the point of selling the debt if they have already litigated it? The whole purpose of selling debt to the collection rackets is so they can harass the debtors into paying. That's their specialty. If they are taking the time and effort to litigate those cases themselves it seems to indicate they think they have a good shot at collecting.

[flvegan]

84. No, the bank should work the loan out.

Make it perform. So easy, but the banks are far too fucking stupid to realize that they could still make money with a performing loan rather than tossing $50k at a chasm.

Every day, I look at these foreclosing lenders and wonder what kind of fucking morons are running the show there.

[Kurovski]

43. Honestly, what else are people to do

but take to the streets when faced with this cruel and savage new brand of economic slavery?

[Fire Walk With Me]

46. Thank you banks for fueling the fires against you!

[Marr]

51. This seems like it's bound to turn into fraud. What's to stop a bank from

selling a home to some other mortgage holder, perhaps even a subsidiary, then turning around and getting a "deficiency judgement" against the old homeowner, allowing them to keep the asset *and* charge the customer?

[SoCalDem]

54. The fact is that when you borrow money, sometimes they come after you for payment

Because actual cash is rarely seen, people often just think of the paperwork, but in a house transaction, there is real money involved.

If you are buying a house from someone, the bank you used GAVE them the money, and h=charged it to you.. You are on the hook for the money they gave on your behalf.

If they GAVE you $200K so your could buy that house, you owe them $200K, even if you stop paying on the house & walk way. The will take possession of the house and sell it for what they can, but if there's still money owed, they will come to YOU for the balance.

If you are destitute, and cannot pay, sometimes the bank will just decide that the difference owed is not all that cost effective to them to track you down for, but as house values keep dropping, banks have more reason to try to get money from you to come as close to full payment as possible.

In some cases you could even owe taxes on a "forgiven" amount, in a foreclosure.

If you gave your brother $10K in cash so he could buy a car,...and a while later he crashed it, & sold it for $2K (which he gave to you), would you still expect him to pay you the other $8K he owed you?

[TBF]

56. Some days I am really glad we are renters -

we had a lot of debt coming out of grad school. We decided to wait.

We like our house/neighborhood that we've been renting in for 5 years, we've been slowly paying off the bills, and we've got a savings account.

Maybe we're in a better situation than one would think at first glance.

[socialist_n_TN]

57. Not unsurprising...........

it's the same if they repossess your car. They sell it at auction and you're on the hook for what's left of the loan after the sale goes through. Plus interest, late fees and attorney fees. It ain't right, but it what comes from living in the dictatorship of capital.

For a lot of people a Chapter 7 might be in order to get rid of that debt. BTW, you CAN recover from a 7 fairly quickly. Even after three years if you've rebuilt your credit and have no lates, you can get another mortgage. It's not the credit death sentence that the bankers would like for you to believe.

[RB TexLa]

61. Of course people owe what they legally obligated themselves to pay

[truedelphi]

74. Yep they sure do, unless they happen to be "persons"

Created by means of "Corporate Person-hoodship" - in which case they are probably just Too Damn Big To Fail.

So those "Big People" can expect that people like Hank Paulson, or Kashkari, or Bernanke, or Tim Geithner will help oversee that they are Bailed out to the tune of some nine to fourteen trillion dollars.

Which goings on has sucked Main Street dry, while creating yet another "bubble." But this new "bubble" is that of buying up banks, and so it is a bubble that Main Street is shut out of.

Which is why the "Occupy Wall Street" efforts will continue to grow.

Every single day, more and more people realize what a sham the actions of our top economic people have been. Every day, more and more people realize that the only trickle down that the middle class (and lower class) ever see is a diminishment of everything this nation once held sacred.

[tjwash]

62. Thank you for this.

I have a friend who is thinking of walking away from a mortgage, and am going to forward him this article.

[ms.smiler]

81. I have a suggestion for your friend.

Your friend needs to check his or her mortgage. There is a slight chance it is a legitimate mortgage but it is much more likely to be a problematic securitized mortgage.

Have your friend check and see if it is a MERS mortgage. Check the Recorder of Deeds office, (most have online records) and see if any MERS documents are in the property Title history.

If the mortgage loan was securitized, (turned into a security) it is doubtful that any company can actually prove they own the loan.

The securities fraud involving MBS investors over on Wall Street is directly connected to securitized mortgages over here on Main Street.

If your friend has a MERS mortgage, they would be much better off filing a Quiet Title action which will settle the question of any liens and the Deed plus any damages due the homeowner. Such suits aren't expensive nor do they take very long.

It doesn't make sense to me to walk away from a property when the homeowner can obtain the Deed.


I've been researching mortgage/foreclosure fraud for 3 years. I recently filed suit against my mortgage servicer. If your friend has a MERS mortgage, please let me know and I'll provide additional information.

[Matariki]

70. "Like everything else, we'll see"...

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=385x620544

[Bake]

91. Yes, because God forbid the banksters should lose a dime!

If I could get there, I'd be with the protesters on Wall Street. Unfortunately, I too lost my home and I'm dead broke.

Bake