While foreclosures and loan modifications have made it tough for overwhelmed banks to go after walkaway borrowers, there’s evidence they are starting to crack down.
Lenders are hiring collection agencies. They also are getting deficiency judgments—court orders that allow banks to collect on mortgage balances. Once an order is in place, lenders can garnish wages, tap bank accounts, seize tax refunds and put liens on other assets to satisfy the debt. These judgments also show up on credit reports.
If the lender sells the home after a foreclosure for less than what is owed on the loan, the bank can come after the borrower for the deficiency balance.
Many states give mortgage holders as long as five years to seek a deficiency judgment. If a judgment is granted, the bank gets up to 20 years to collect and the option to renew for another 20 years if the debt isn’t paid. In Michigan, lenders have six years from the date the last payment was due—or 36 years on a 30-year mortgage, said Southfield real estate attorney John E. Jacobs.
“A lot of people do think…they don’t owe anything on the mortgage anymore,” said Michael Greiner, a Warren attorney who specializes in personal bankruptcy. “That’s not right. Banks try to collect on these mortgages.”
Still, it’s a slow process as banks focus mostly on loan modifications and foreclosure avoidance right now.
“In a couple of years down the road, you will see a lot more of the collections on these debts,” Greiner said.
According to the Federal Deposit Insurance Corp., mortgage recoveries rose 85%, to $1.5 billion last year, compared with 2008. Recoveries are up 187% from 2006.
In Michigan, mortgage recoveries jumped 26%, to $13.96 million last year, compared with 2008.
Owners who walk away also are responsible for tax obligations on the home. Usually in such situations, delinquent property tax bills end up being paid by banks because they don’t want to lose a property in a tax foreclosure, said Tom Agrusa, deputy assessor for the City of Warren. But ultimately, lenders go after borrowers for those taxes and the unpaid mortgage balance.
Greta Guest Detroit Free Press March 7, 2010