Americans Face Post-Foreclosure Hell as Wages Garnished, Assets Seized
(Reuters) – Many thousands of Americans who lost their homes in the housing bust, but have since begun to rebuild their finances, are suddenly facing a new foreclosure nightmare: debt collectors are chasing them down for the money they still owe by freezing their bank accounts, garnishing their wages and seizing their assets.
By now, banks have usually sold the houses. But the proceeds of those sales were often not enough to cover the amount of the loan, plus penalties, legal bills and fees. The two big government-controlled housing finance companies, Fannie Mae and Freddie Mac, as well as other mortgage players, are increasingly pressing borrowers to pay whatever they still owe on mortgages they defaulted on years ago.
Using a legal tool known as a “deficiency judgment,” lenders can ensure that borrowers are haunted by these zombie-like debts for years, and sometimes decades, to come. Before the housing bubble, banks often refrained from seeking deficiency judgments, which were seen as costly and an invitation for bad publicity. Some of the biggest banks still feel that way.
But the housing crisis saddled lenders with more than $1 trillion of foreclosed loans, leading to unprecedented losses. Now, at least some large lenders want their money back, and they figure it’s the perfect time to pursue borrowers: many of those who went through foreclosure have gotten new jobs, paid off old debts and even, in some cases, bought new homes.
“Just because they don’t have the money to pay the entire mortgage, doesn’t mean they don’t have enough for a deficiency judgment,” said Florida foreclosure defense attorney Michael Wayslik.
Advocates for the banks say that the former homeowners ought to pay what they owe. Consumer advocates counter that deficiency judgments blast those who have just recovered from financial collapse back into debt — and that the banks bear culpability because they made the unsustainable loans in the first place.
Rest from Reuters here…
@ Colleen – they don’t lose but they do show a ‘loss’ on the books during the foreclosure. Once it is a REO (real estate owned) it becomes an asset and that’s where the profit is posted. So, for all intents and purposes they claim they are losing money. It just matter which side of the P&L statement that is looked at and unfortunately, the loss side is the only one that is viewed. Banks have the advantage of deducting losses from their balance sheets that does not apply to citizens. And thanks to Mr. “O-Change” in Washington we are losing more and more of those deductions every day along with the rest of our constitutional rights!
Are these banks crazy or what? If they start going after people for deficiency judgments then they are going to start another downward cycle of deflation. People will end up spending less and the courts will see more and more bankruptcies to eliminate the deficiency judgment. It is far better to wipe out all debt and start over then to pay these crooks who already took your home and the money you put into and sold to another person. The banks have won three or four times over, first, the got your home, second they were bailed out by the government and third, they sold the home again. How could they possibly lose?