Worried that your bank might go after your other assets if you're late on the mortgage or lose your home to foreclosure?
It can happen in Florida, especially if a bank sells your foreclosed house and doesn't recoup the full loan amount and if you're a big-dollar borrower.
With nearly half of all mortgages under water in South Florida, plenty of residents may wonder if their home lender can garnish their wages or suddenly lock down their deposit accounts.
Rules on tapping assets vary by state and depend on the terms of specific loans and accounts.
Problems on typical home loans usually don't crop up before foreclosure. They tend to come after the bank sells the home and ends up short.
In Florida, banks can go to court for a "deficiency judgment" to collect the rest of the money owed on a mortgage after foreclosure, said Anthony di Marco, vice president of the Florida Bankers Association.
Banks can pursue other assets with that judgment. They can file a lien on your boat or car. But "they can't jump priority on a loan," so the lender for that boat or car has first dibs to collect, di Marco said.
Florida banks usually don't target other assets after foreclosure if they don't see much to tap. "Collecting on judgments is time-consuming and costly," said real estate attorney Shari Olefson, a partner at Fowler White Boggs in Fort Lauderdale and author of "Foreclosure Nation: Mortgaging the American Dream."
But banks pay more attention to borrowers with multimillion-dollar homes or businesses that default on big commercial properties. The lender can check if the customer has other accounts with the same bank. Depending on the terms of those savings or checking accounts, they may move to freeze, sweep, garnish or otherwise tap those accounts to collect money owed, Olefson said.
There's another risk for smaller borrowers later. Banks may sell their deficiency judgments to a collection agency. The judgments are valid for up to 20 years. That leaves an agency focused on collections ample time to come after you for the balance still due, she said.
"That's why it's so important for people to deal with these mortgage problems upfront," Olefson said. "So if you have the chance to do a short-sale through the bank, or if you have the chance to negotiate with the bank and clear up the loan — rather than have this financial time-bomb ticking over your head for years — you'll be so much better off working with the bank."
And be sure get any settlement reached with the bank in writing, mortgage specialists add.
No matter what, some types of assets are off the table when banks look to collect money due on homes.
Some federal payments cannot be garnisheed at any time to cover a mortgage. Those include Social Security checks, veterans benefits and some railroad retirement payments, among others, according to the American Bankers Association in Washington, D.C.
Some states don't let banks go after an individual's assets after a home is seized and sold, said Mark Tenhundfeld, the association's senior vice president of regulatory policy.
Even with a deficiency judgment, Florida law specifies 11 items that cannot be garnisheed to pay court orders in most cases, including unemployment benefits, disability checks and payments from Supplemental Security Income, a federal anti-poverty program.
Consumers in Florida have complained about what they see as improper garnishments by banks.
The Florida Office of Financial Regulation said concerns often center on Supplemental Security Income payments garnisheed to pay the mortgage loan.
But a consumer can reverse the practice by showing that the law exempts that income from garnishment or by going to court to resolve the issue, said Flora Beal, a spokeswoman for the regulators office.
Banks have sometimes garnisheed funds that are electronically deposited into a customer's account, not knowing that the money came from exempt sources, according to the Florida Bankers Association.
The borrower's recourse: Inform your bank that the money is exempt and seek to get it back, said the association's di Marco.
That's not always easy, according to South Florida building contractor James Clare III.
Clare said he fell off a roof during a job, was disabled and lost income. He ran late on mortgage payments and other bills. One day, he found that his bank would not allow him access to a disability award electronically deposited into his account at the same bank.
Clare engaged a lawyer, but he said it took weeks for the bank to give him access to the funds and then, only after he agreed to bring some payments up to date.
"I had no choice. It would have cost me more to go to court. My attorney said by the time I'd pay all the fees and all the bills over a year or two, the money's gone," said Clare. "It was the most frustrating time."
January 10, 2011 | By Doreen Hemlock, Sun Sentinel
