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By now, banks have usually sold the houses. But the proceeds of those sales were often not enough to cover the amount of the loan, plus penalties, legal bills and fees. The two big government-controlled housing finance companies, Fannie Mae and Freddie Mac, as well as other mortgage players, are increasingly pressing borrowers to pay whatever they still owe on mortgages they defaulted on years ago.
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Using a legal tool known as a "deficiency judgment," lenders can ensure that borrowers are haunted by these zombie-like debts for years, and sometimes decades, to come. Before the housing bubble, banks often refrained from seeking deficiency judgments, which were seen as costly and an invitation for bad publicity. Some of the biggest banks still feel that way.
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But the housing crisis saddled lenders with more than $1 trillion of foreclosed loans, leading to unprecedented losses. Now, at least some large lenders want their money back, and they figure its 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 foreclosure defense attorney Michael Wayslik.
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Three of the biggest mortgage lenders, Bank of America, Citigroup, (C.N) JPMorgan Chase & Co (JPM.N) and Wells Fargo & Co. (WFC.N), all say that they typically don't pursue deficiency judgments, though they reserve the right to do so. "We may pursue them on a case-by-case basis looking at a variety of factors, including investor and mortgage insurer requirements, the financial status of the borrower and the type of hardship," said Wells Fargo spokesman Tom Goyda. The banks would not comment on why they avoid deficiency judgments.
Perhaps the most aggressive among the debt pursuers is Fannie Mae.
http://www.reuters.com/article/2014...dType=RSS&feedName=topNews&utm_source=twitter
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