Deficiency Judgments: A Different Opinion of Risk
In response to my statements on this Blog that most lenders do not pursue mortgage deficiency judgments, I received a email from an experienced collection attorney expressing a contrary opinion. The collection attorney (he did not giver permission to reveal his name) stated that he knows that lenders will be pooling mortgage deficiency judgments and selling them to collection companies for pennies on the dollar. Credit card companies have an established practice of selling non-performing credit card debt at seep discount. This same attorney says that many borrowers who walk away from mortgages will be in for a big shock in the future when collectors who have purchased the mortgage companies deficiency rights surprise the borrower with legal action.
Whether or not the attorney's prediction is correct will be seen in the future. As stated often, my own experience over the past few years is that deficiency judgments are rare, and most attorneys and bankers I have spoken with agree. Yet, if its economically practical to purchase mature deficiency claims then there might develop an industry to pursue some of today's numerous homeowners walking away from their mortgages. The homeowner needs to be aware of all opinions and predictions in order to make informed financial decisions.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida
To prevail in a deficiency action against a debtor who is diligent about asserting his or her rights, the junk debt buyer will need to produce the original note. Owing to securitization and resales of mortgages, obtaining the original note has proven elusive for creditors who are not members of MERS (the Mortgage Electronic Registration System, which maintains a centralized repository for original documents). There are other issues that debtors will be able to raise as well. Word is starting to get around that JDBs' documents are seldom in order, and that the well-defended case is usually a cakewalk for the debtor rather than the creditor. The JDB industry is enjoying a heyday. They should not expect that to go on forever without NACA, Congress, debtors and the courts applying brakes worthy of a Ferrari.
I own a condo in South Florida and two other properties in California; one which is my primary residence. The condo is under water and I've attempted to modify my loan since August and my lender has stonewalled me. This month the interest rate jumped up with a $500 monthly increase. I did not make the payment and am now moving toward default. My concern is that since I own two properties in California, are my other assets safe from the lender or collections agency?
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Credit card companies have established practice of selling non-performing credit card debt at seep discount.