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Thread: Beware, the Foreclosure Collection Man Cometh

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    Default Beware, the Foreclosure Collection Man Cometh

    http://globaleconomicanalysis.blogsp...ction-man.html

    "Those who walked away without legal counsel may soon regret it as Lenders Start To Pursue Mortgage Payoffs Long After Homeowners Default.

    When John King stopped making payments on his home in Coral Gables, Florida, two years ago, he assumed the foreclosure ended his mortgage contract, he said. Last month, a Miami-Dade County court gave collectors permission to pursue him for $44,000 stemming from the default.

    King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.

    ‘Next Big Crisis’

    Deficiency judgments were rare in the 15 years since the last real estate slump, said Ben Hillard, a former investment banker who now is a real estate and corporate attorney at Hillard & Rogers in Largo, Florida.

    “The banks have been too underwater with foreclosures to spend much time on deficiency judgments, but that’s beginning to change,” Hillard said in an interview. “This is going to be the next big crisis.”

    In states such as Florida, courts give mortgage holders as long as five years to seek a deficiency judgment and, if granted, up to 20 years to collect. Usually, they have the option of renewing the judgment if it’s not paid off within 20 years.

    About a third of U.S. states, including California and Arizona, prohibit collection efforts on primary residences after foreclosure. In some cases, homeowners waive that protection if they refinance. Most states allow collection on unpaid home equity loans.

    It’s not just foreclosures that can trigger debt collections. Short sales also may lead to deficiency judgments years after former homeowners have moved on."

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    Default Re: Beware, the Foreclosure Collection Man Cometh

    Real Estate "investing" and "leveraging" debt are going to get a really really bad name...

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    Default Re: Beware, the Foreclosure Collection Man Cometh

    ^^^ legally speaking, the 'key' to the above situations taking form is whether or not the defaulted real estate loan is 'recourse' or 'non-recourse'. Where most conventional first mortgages are concerned, the lender's financial 'recourse' in the event of a default by the borrower is foreclosure and liquidation of the real estate upon which the loan was collateralized ... with limited additional opportunities for the lender to recover any resulting deficiencies between the loan principal amount and the amount recovered via liquidation. However, the proliferation of second mortgages, home equity loans, refi loans etc. almost always expanded the lender's potential scope of 'recourse' to cover not only the real estate upon which the loan was collateralized, but any other assets / income sources of the borrower as well.

    In the former case it was usually not 'worth it' for a lender to pursue a liquidation deficiency too strenuously, since the legal costs mount quickly and the recovery opportunities are limited. But in the latter case, the recovery opportunities may indeed be as simple as obtaining a judgement and filing for wage garnishment. Of course in the latter case, a bankruptcy filing by the defaulted borrrow ends such collection attempts.

    Bottom line is that one can't 'get blood out of a stone' ... or 'you ain't seen nothin yet' where personal and business bankruptcy filings are concerned.

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