I ran across this article in the Wall Street Journal the other day, entitled “The House is Gone but the Debt Lives On:”
http://online.wsj.com/article/SB10001424053111904060604576572532029526792.html
Which raises a rather disconcerting point that I have
long been worried over; A staggeringly large segment of the population
of the State of Florida has suffered through a mortgage foreclosure in
the past 5 years, and during that same time the economy and local real
estate markets collapsed. The combination of these factors meant that
virtually every single one of these foreclosed properties sold for less
(often far less) than its mortgage value at the judicial sale, leaving a
balance owed by the foreclosed homeowner.
Lenders have, thus far, been sleeping on their rights when it came to
collecting these deficiencies, due to a variety of factors, not
the least of which is that most of them were TARP recipients and only
avoided collapse with the aid of bailouts from the same taxpayers they
were foreclosing on. So they were in something of a public-relations
catch-22 when it came to playing hardball. But 2008 is now a fading
memory, at least in the eyes of Washington and the media, and time has
marched on. Many banks failed, and the ones that remain
ultimately repaid their government bailout funds.
With banks no longer bound by many of the same public relations
concerns, they are now beginning to go about collecting on these
outstanding mortgage deficiencies. Some are selling the debts to
collection agencies or junk debt buyers, and others are beginning to go
after homeowners directly. As always in credit and collections law,
those with salaries and personal property to garnish and attach are the
most likely targets of collection efforts. Another wrinkle is mortgage
insurors, who additionally may have the right to collect on a
mortgage deficiency.
I suspect that, as 2012 arrives, many people who were forced to walk
away from a home or investment property, and who have thought that
heart-wrenching period of turmoil was over, are going to wind up with a
nasty surprise, as this appears to be the new hot-ticket item for
collectors and junk debt buyers. Thankfully, these deficiencies are
dischargeable in bankruptcy, and because of the sheer size of the
obligation (deficiencies often run several hundred thousand dollars) the
former homeowners are more likely to qualify for a Chapter 7, wherein
the deficiency can be completely eliminated. Even so, it strikes me
that just when people thought they were moving forward, out pops another
roadblock, courtesy of the financial crisis.
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