Lost Your House? The Worst Is Yet To Come.

Categories: Broward News
Yesterday, the St. Petersburg Times published a terrifying little story that somebody should have written years ago, informing the Floridian public of the awful things that could befall them even after they've foreclosed on their tanking mortgages, and given their housekeys to the banks.

The banks will likely still come for them, reported staff writer Kris Hundley -- and if not the banks, then "a second mortgage holder, a mortgage insurance company or a government entity like Fannie Mae or Freddie Mac."

They will come demanding ex-home-owners pay the difference between the size of their erstwhile mortgages and the amounts for which the lenders had the homes appraised. These debts are called "deficiency judgments," and there will be a lot of them.

"To recoup the debt," Hundley writes, "creditors may be able to garnish wages and take money from bank accounts. They can also go after certain possessions, like jewelry, rental properties and boats."

According to Hundley, deficiency judgments are on the rise state-wide. In Lee County, they've increased five-fold between 2008 and 2010, and are on track to increase twofold in 2011.

Do check out the story. Kris Hundley and Natalie Watson did honorable work here, detailing the particulars of individual cases, and even providing advice for ex-home-owners trying to evade deficiency judgments.

UPDATE: Deficiency judgments must be the coming thing, 'cuz just as the Times were publishing their piece, the Palm Beach Post's Kimberly Miller and Christine Stapleton were composing a similar story of their own, focusing on local cases. Read it here.

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Morality Shmorality
Morality Shmorality

The underlying articles were good reporting, but please don't oversimplify and overstate/create hysteria on this topic.

I am an attorney (although I don't handle foreclosures) and I see first-hand in court every day for the past several years the explosion of foreclosures.

The concept of deficiency judgments is nothing new, and the concept of banks obtaining deficiency judgments is nothing new.

The reality trumps the hysteria on this topic. If you are a homeowner that is in dire financial straits and you lose your home to foreclosure and do not have significant assets or a high-paying job, your chances of getting whacked with a deficiency judgment and collection efforts is very very very low. There are numerous defenses and exemptions for garnishments that a bank could obtain, and they aren't coming to hunt down your engagement ring. The reality for the average person with a house they can't afford, a foreclosure (a horrifying result for anyone), and an average life is that you get foreclosed on, your credit gets destroyed (like one would expect when you default on a 6 figure+ loan), for a few years you can't get a car loan or home loan or new credit cards, and then you rebuild your financial life.

The people that are really going to get HIT with a deficiency judgment where the bank is actually going to try to collect are those "strategic defaulters" (I'll just call them deadbeats) -- people who took out loans that they could pay for at the time they took out the loan AND CAN STILL PAY FOR (as compared to the millions who really weren't qualified for loans by the banks looked the other way), and just let a house go into foreclosure because it has dropped in value. These are people that the banks will realize have assets and realize that unlike many in foreclosure, they CHOSE to ignore their contractual agreements.

I won't get into a debate on whether "strategic defaults" are "morally right" (there are good arguments on both sides, such as "the banks and cororpoations breach their contractual agreements all the time when the terms don't suit them anymore and then get bailed out, so why is it immoral for me to break my contract with the bank", etc.). However, I think that someone, for example, like me, with a good job, a good paycheck, money in the bank, cars owned outright, etc., etc., etc., who chooses to default on my mortgage because the house I payed $750k for in 2006 is now worth $350-400k, shouldn't be entitled to a walk away.

There are several states with "non recourse mortgages" (i.e., mortgages where the house is the sole security for the loan, and if you get foreclosed on, you turn in the keys, get the credit ding and otherwise walk away) -- but it costs more in interest and fees up front to get that loan.

Sorry for the lengthy rant.


Torches and pitchforks. An idea whose time might be coming.

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