Mortgage lenders pursue homeowners even after foreclosure

This is terrible. I feel so sorry for these people. I always assumed the bank will find a buyer for the home and even make profit out of foreclosed homes..This shows yet again how bad things are with the economy

The dichotomy between corporate responsibility and individual responsibility in relation to things like this is something that really bothers me. It's perfectly OK for a company, in a business decision, to walk away from a loan and declare bankruptcy. For an individual, it ruins their lives. The bank made the loan - they charged for the risk - and the former homeowner still suffers.

Actually, you can extinguish the deficiency judgment by declaring bankruptcy.

But, if you agree to pay $100,000 for a house, stop paying the payments, and walk away from it, or if it is foreclosed on, if it can't be sold for the amount of the loan payoff plus the expenses of the foreclosure you still owe the mortgage holder that deficiency. You agreed to pay it in the papers you signed at closing.

Now, I do have to say that if a house if sold at auction, usually the mortgage holder will be the top bidder, bidding the amount of the mortgage.

Home ownership isn't for everyone. If the mortgage policies seem unfair, then maybe you should be renting.

Ms. Banker here! You can hate me if you want to. I agree with Mr. B's comments. Many times homeowners or vandals rip out everything, kitchen cabinets, tubs, toliets, punch holes in walls, etc. It takes money to fix it up to be sold not to mention property inspections, general upkeep costs for lawn mowing, etc All those costs, plus the court and attorney fees are a great expense. Banks lose money most of the time . I don't think it's harsh that they go after what is due them. An agreement was signed to repay what was borrowed.

Fault lies on both sides .. but MANY of these homes were bought by people who only qualified via sub prime loans... IMHO those = BANK 100% responsible .. giving a 200K loan to someone who makes 30K a year is STUPID and well stupid is as stupid does

Exactly! Somehow many people in this country are under the impression that everyone has a right to own a home, they do not.
You have a right to own a home if you are responsible enough to save up a nice down payment and buy a home within your means. If you can't do that, then you have no business buying a home.

Many people were able to obtain a home mortgage with NO down payment for a home that was far beyond their means. I have no sympathy for those people.

You ever hear the old saying, "you can't get blood out of a turnip?" It applies here.

I agree with you as well Chris. If you don't want the hassle of doing your own repairs etc... then rent!.

Yes, if they haven't declared bankruptcy.

And, should they have other assets, those can be seized. I don't know what the limitations are. If you get another house, there will probably be a lien on it for the shortage on the previous mortgage.

Come on now mrblanche, you and I both know that no one is going to go pursuing anyone that is homeless or living in a tent city.
This is America after all.

But what about the people who were responsible and could afford the home, and circumstances changed? They've lost their jobs because of the economy - caused by the financial mess - the exact same reason the home is no longer worth what it was.

Fine - so a person declares bankruptcy in order to walk away from the deficiency on a home. A sound business decision for some. This person is now penalized with higher lending rates for anything and a marred credit report that follows them everywhere they go.

A business declares bankruptcy and walks away from everything. The management of that business can start another company, and no history of their former failure follows them or costs the new company more in lease payments or higher interest on loans or lines of credit.

Individuals are reluctant to declare bankruptcy for a reason. Why is there the difference between personal responsibility and corporate? The responses in this thread just highlight the problem!

You're right, they probably wouldn't pursue them. But they WOULD enter a deficiency judgment on them, just in case they win the lottery or get back on their feet.

One important point is that if those judgments are not re-filed every few years, they expire, if they are not filed as liens on actual property.

Yes, they do. They're usually researchers, going through title records, etc., seeing if the people are acquiring property, working, etc. When they find they have bought another house, they will file a lien on it.

I suspect most lenders subcribe to a search service that does this full time. It takes a pretty high level of expertise to know everywhere to look.

As the "Ms Banker" said, this kind of economy brings out the worst in some people. There are a certain portion who will see this as an opportunity to shed some debts in a relatively painless way, and maybe take the bank for a ride, too.

On a slightly related subject, I had a friend when I was in real estate who had been an insurance investigator and researcher. He had a list of people that he had to check every year. The most interesting example was a young couple who had gotten married and were on their honeymoon out in Arizona. A motel they stayed at had gas pumps out front. In the morning, they checked out of the motel, filled their car with gas, paid for it, and drove off...with the gas hose still in their car. They pulled over the pump, which started gasoline spraying all over. It caught fire and ultimately burned down the whole hotel. Their car insurance came nowhere near paying for the damages, so they had a deficiency judgment filed against them. If they ever bought a house, it would have that lien filed against it.

We had our house repossesed 2 years ago this may, we were with Northern Rock mortgage company who went bust then. We were living in a small 2 bed house and we had 3 children, we put the house up for sale and contacted Northern Rock and arranged to transfer our mortgage to our new property when we had sold ours and found a new one, they even sent us a principal in agreement. We sold ours in the january and found a new house, so I phoned up Northern Rock to put the transfer in place only to be told that the principal in agreement was no longer valid due to the current problems that they had had and that the only way we could get another mortgage was to put down a £10000 deposit, hmm like we had that. As our fixed rate was up we tried to get another mortgage but due to the problems that Northern Rock had faced nearly all mortgage companies now want a hefty deposit which is understandable but we just didn't have it. We felt so let down and the to top it all off we had to re-new our fixed rae and it was almost triple what we were paying previously and there was no way we could afford it.
We sought legal advice and we were told that Northern Rock had done wrong by nulling or principal in agreement and it was illegal but due to their problems there was little we could do. We were advised to pay what we could afford to them and we did this, they took us to court at the end of april and the judge was very nice, we explained what had happened and he just tutted and said they were awful, he asked us what we wanted to do as nobody knew what would happen to Northern Rock at that time and we could have ended up losing our home anyway and we had already found a house to rent by that point. We told him this and he just gave us a 28 day order.
I have never cried so much in my life, I had to leave all my friends,the kids had to change schools/nurseries and we had to leave our beautiful home which we had spent so much money on.
The house only sold last year and we now owe them £50000 as they let it go for such a measly price on auction. I have been in touch with Northern Rok and they said that it had been passed to solicitors. Well that was months ago and we haven't heard anything, I have been in touch with a solicitor who said that we just have to wait for them, goodness knows how long that will take but we will have to end up going bankrupt,we can apparently make some kind of claim against them but goodness knows what we will get out oif it. This was not our fault and we have had to suffer so much.x

Ruthy, I'm so sorry! But all of this points up another aspect to the question I've been asking - why should the consumer have to pay for a business's poor decisions/bad investments?

I just don't think it is as cut and dry as many in this thread are making it out to be.

You're right, it isn't and Ruthy sure pointed this out. That is an awful to have happen.

I totally agree, the government had to bail Northen Rock out and pay all their debts off, which obviously comes from taxpayers, all because Northern Rock were lending over their limits to people that could not afford mortgages and the people that could afford to have a house have had to suffer. Richard Branson put a bid in for Northern Rock and their debts which would have been better than the government having to pay them off.x

If the issue is legal they are called Bounty Hunters or Federal Marshalls, and it's looked at as a good thing.

If it's a financial issue they are called Skip Tracers, and they are generally more underhanded and frankly more ruthless than Dog the Bounty Hunter ever was, except that they are only allowed to use telephones and surveillance as their weapons, not guns. If they can't find you they will find relatives and call them. They will call your neighbors. And the sad thing is that most of the time it isn't the banks that will do this - it's collection agencies who purchase the debts from the legitimate lenders and will stop at nothing short of a bankruptcy (and sometimes not even then) to collect the debt that they bought for (usually) pennies on the dollar. (Unfortunately a family member got in over their head, so I know way too much about these bottom of the barrel collectors.) I don't know if they are allowed to purchase these type of debts or not, but I don't know why not. If the bank has written off the loan, I can see it happening.

I know this isn't possible, but what about the mortgage sharks who would do anything to get someone into a mortgage, including and especially getting them into more house than they could afford? We dealt with one of them before we got our actual mortgage (and a good one, through a real bank with a good interest rate). When it came back that we didn't qualify for what we wanted, she actually suggested that we have my father get the mortgage (since he has impeccable credit) with my name on it, then after 5 years refinance and put it only in my name. And I know she wasn't dealing in the worst ways, because she would have found a way to smudge the data to get us into a home right then so she would have gotten her commission.

But those people sold BAD mortgages, knowing they were bad, and then sold them (through a few sales) to the banks that are now having to do this to people who have been foreclosed on. And they got away with millions, if they were smart and knew when to get out. I'm sure some of them were that smart. Not all, but some.

I agree. Not every situation is black and white. Not every situation is someone who was irresponsible. Many of my friends who could well afford their homes when they bought have lost jobs due to the economy. Some have lost their homes. These are people who put downpayments down, and had savings. They ruined themselves financially, and even cashed in their retirements to try to do the "right thing". To say these people were irresponsible is ignorant and cruel. Sometimes circumstances change. Those who can't see the "other side" had better pray that fate doesn't turn on them. If you don't think it can happen to you, you're mistaken.

Mind you, I didn't call anyone irresponsible (although I wouldn't have any trouble finding a few for you who are). What I said was that they made an agreement, and in that agreement, they agreed to the remedies the mortgage holder could seek if the borrower failed to keep his end of the bargain. If losing your job was an excuse for not paying your debts with no consequences, then everyone would make sure that every few years, they lost their job.

There were definitely people out there who got mortgages when they shouldn't have. I wonder how many of them told the truth on every question on their application?

Back in 1980, both my wife and I lost our jobs as teachers. She found a series of less than wonderful jobs, and I got a real estate license. That was during the recession that makes the current one look mild (despite what you may have heard, the current recession is nowhere near "the worst since the Great Depression"). We got behind on one of our gas cards, didn't pay the Sears bill, and just barely kept up the payments on the house. We shed a motorcycle and a boat, and sold the house to a broker on the agreement that we would pay the payments for the next year. When we closed on the house, we paid off all our bills and were debt free except for one car payment.

Now...tell me again how I don't have any sympathy?

We kept up on our agreement it was our lender who changed their agreement and we are going to fight all the wy to prove that they were in the wrong. I agree totally that people who take on mortgages and can't afford them should be at fault but also the lender should not lend to people who cannot afford. x

You're not the only one who has responded to the thread. Not every comment I made was expressly for you.

Believe me, my friends have "shed" everything they have. Lucky you that you got "less than stellar" jobs. I've got friends who were executives, COO, etc...they've been turned down by the likes of Target, Home Depot, etc. They have been pulling so hard on their bootstraps that they're breaking.

I'm not saying that there weren't/aren't people who are "strategically foreclosing", but my point is that there are lots of different types of situations. This statement you made: If losing your job was an excuse for not paying your debts with no consequences, then everyone would make sure that every few years, they lost their job. is, at best, inaccurate. I wouldn't make sure I lost my job. That's not the way I'm built, nor would any of my friends. And if you think someone who has lost everything, sold everything, and cashed in everything, and then went through foreclosure anyway hasn't suffered consequences, then I'm at a loss as to what to say to you.

There have been lenders here, too, who were bought out or for other reasons didn't abide by agreements they had made earlier. I suspect when this has all shaken out, there will be some serious money changing hands with those who can prove that.

But in this day when so much is done by e-mail or phone, I wonder how many people will be able to prove anything.

A VERY IMPORTANT POINT!!! Texas (and most other states) have a law called the statute of frauds. Boiled down to simplest layman's terms, "If it ain't in writing, it ain't." In other words, only written agreements can be enforced by a court.

Mike, as Kelly pointed out, you're not the only one replying in this thread.... but I would like to point out that in all your posts (until in reply to Kelly) you posit the consumer as the problem, and your initial statement,

bothered me, because there are, as I have pointed out, plenty of people who could afford the mortgages when they bought the home. I've never purchased a home and so had no idea what is included in a contract - and yes, the deficiency issue in a contract does bother me, because if I am put in a position that I can no longer afford my home because of the economy, and the bank is going to be forced to sell my home under water because they need the cash because of the economy - why should I eat the entire problem? Why shouldn't the bank have something to gain by renegotiating the terms of the loan and keeping me in the home? It is unclear to me why the consumer has to be responsible for the problem when they didn't create it.

Further,

Here again, you assume the worst in the consumer.

I'm just having a problem with the concept of the consumer being the only source of any problems. And it's one thing to say "you can declare bankruptcy" to avoid the deficiency lien.... this just takes me back to my original question. Why do individuals have a different moral responsibility than do corporations when it comes to things like declaring bankruptcy?

I have trouble with the willingness to place blame on just the consumer when as others have also pointed out, frequently the corporation is part of the problem.

I'm not accusing you of not being sympathetic. I'm just seeing you exhibit a bias towards individuals as the problem. And while certainly there are individuals that took advantage of the lax lending policies, there are institutions that encouraged them to do so. There are also plenty of hard working people who played by the rules and are now facing moral responsibility issues that corporations do not, and I do not understand why this bias to blame the consumer exists, and I do not understand why individuals should bear a different level of responsibility than corporations should.

OK, let me be clear: There is blame enough to go around to everyone on this deal.

And let me make a clear disclosure: I have been in the position of all 3 parties in the home buying equation. I have been a buyer/seller, a real estate agent, and I've had association with the start-up of a mortgage brokerage, in addition to carrying a note on a house I sold.

As a buyer, I made the effort to be fully informed. As a seller, I've tried to disclose everything a buyer needed to know to make an informed decision. As a real estate agent, I tried to put people in houses I knew they could afford and steered them away from those they couldn't, then made sure all the parties were fully informed. I don't like the mortgage brokerage business, and carrying a note drove me crazy.

There ARE reliefs for those who get caught up in the bad economy. The most common and thorough is called bankruptcy. Anything short of that leaves the consumer subject to deficiency judgments and other problems. It's not as serious as all that, and if it's done right, you might even be able to stay in the home.

I have sat in a mortgage company's office and listened to my clients lie to the officer, in spite of what I told them. And I've seen many mortgage officers gloss over the dangers of the ARM. I've seen my clients walk out of my office when I told them that they couldn't afford a house, and watched them buy it through another agent on a negative amortization ARM, knowing they were going to be in big trouble in 3 years.

I didn't get rich in real estate, at least partially because when I sold a property, it stayed sold, but I didn't write contracts I knew would make trouble for anyone in the deal. Remember, the real estate agent legally works for the seller, and you need to protect them from bad buyers and dead deals.

I always advised my clients to get their own lawyer and take them to the closing, so he/she could advise them about what they were signing. I've seen them make changes at the closing that saved the buyers immense grief later.

But, I have to say I have never seen a deal that I didn't think that the closing room was full of liars. The buyers rarely disclosed their full financial situation, always putting the best gloss on it all. The mortgage company always put the best spin on every charge and fee and never took the attitude that the economy could go bad and make an ARM a disaster. The closing agent always soft-pedaled the clauses that could cause the buyer trouble later, especially the remedies available to lienholders. The client's lawyer always threatened non-signing over some little item or another. The appraiser always came in with an appraisal high enough to support the mortgage the buyer wanted. The inspector always said that the house was sound. And the seller, present only in spirit and in signature, always said he was selling a great house at much less than it was worth.

And it is very true that not everyone should be a homeowner, just as not everyone should go to college. Renting has very real advantages, not the least of which is lower cost.

On our current house, we made the decision to eschew the ARM's and go for a 30-year fixed mortgage, and we paid an extra $2000 to get the interest rate down to 7.5%. When rates went down a few years later, we refinanced at 5.5% on a 15-year fixed loan. We now have almost 50% equity in the house, and it will be paid off by the time we retire. If I were a true shark (like my friend who started the mortgage brokerage), I'd be out buying rental homes. I could buy a lot of houses right now for 50% of their appraised value. But I refuse to expose myself to that financial risk. I just don't have the heart to be a landlord.

But I KNOW we have a number of people in our neighborhood who bought houses at the top of the market, figuring real estate always goes up, and betting that they would be getting more pay by the time the loan rate adjusted, or they could sell it for a profit and use that on another home. Had they asked me before they bought, I would have told them it was a fool's bet, and if they and the mortgage company made that bet, who was the bigger fool was purely a matter of discussion. But they didn't ask me.

However, I have no sympathy for my mortgage company (formerly CountryWide, now Bank of America), because I KNEW they were making loans that would never work out. And THEY knew it, too. They actually had a unit here in Dallas whose job was to get illegals approved, even though they had no previous credit, no social security number, no bank accounts, nothing. They HAD to do it in order to stay out of court over the Community Reinvestment Act, even knowing that those loans would go bad. Of course, they were betting that the houses anchoring the mortgages would actually have gone up in value by the time they had to be repossessed. Boo hoo for them.

I don't understand this part mrblanche

The Community Reinvestment Act requires mortgage lenders to lend in all the communities they serve, without any prejudice. That means, basically, that if a given community is made up of 20% illegals, they have to show that 20% of their loans in the community serves that population. A significant portion of the mortgage crash was caused by lenders trying to stay out of court with LULAC and ACORN.

Mike, thank you for taking the time to share your background and experiences. I do appreciate it. I felt the consumer was being unfairly singled out in this thread, and as you point out in the above response, there certainly is plenty of blame to go around.