Using a legal tool known as a “deficiency judgment,” lenders can ensure that borrowers sold their home on a “short Sell” or lost their home to foreclosure are haunted by these zombie-like debts for years, and sometimes decades, to come.
But the housing crisis saddled lenders with more than $1 trillion of foreclosed loans, leading to unprecedented losses. Now, lenders want their money back, and they figure it’s the perfect time to pursue borrowers: many of those who went through foreclosure have gotten new jobs, paid off old debts and even, in some cases, bought new homes.
“Just because they don’t have the money to pay the entire mortgage, doesn’t mean they don’t have enough for a deficiency judgment,” said Florida lender foreclosure attorney Michael Wayslik.
‘Slapped to the floor’
In 2008, bank teller Danell Huthsing broke up with her boyfriend and moved out of the concrete bungalow they shared in Jacksonville, Florida. Her name was on the mortgage even after she moved out, and when her boyfriend defaulted on the loan, her name was on the foreclosure papers, too.
She moved to St. Louis, Missouri, where she managed to amass $20,000 of savings and restore her previously stellar credit score in her job as a service worker.
But on July 5, a process server showed up on her doorstep with a lawsuit demanding $91,000 for the portion of her mortgage that was still unpaid after the home was foreclosed and sold. If she loses, the debt collector that filed the suit can freeze her bank account, garnish up to 25 percent of her wages, and seize her paid-off 2005 Honda Accord.
“For seven years you think you’re good to go, that you’ve put this behind you,” said Huthsing, who cleared her savings out of the bank and stowed the money in a safe to protect it from getting
It appears as if Fannie Mae is doing just that. In Florida alone in the past year, for example, at least 10,000 lawsuits have been filed—representing hundreds of millions of dollars of payments, according to Jacksonville, Florida-based attorney Chip Parker.
In Lee County, Florida, for example, Dyck O’Neal only filed four foreclosure-related deficiency judgment cases last year. So far this year, it has filed 360 in the county, which has more than 650,000 residents and includes Ft. Myers. The insurer the Mortgage Guaranty Insurance Company has also filed about 1,000 cases this past year in Florida alone.
The FHFA declined to comment..