Mortgage Deficiency Article Published In Wall Stree Journal
The Wall Street Journal published a comprehensive, front page article on mortgage deficiency judgments. The article, written by Jessica Silver-Greenberg, seemed to be consistent with facts I have observed in my practice. The author made many comments and points which are consistent with what I have previously written in this blog about mortgage deficiency judgments. The article reports that:
Lender sue for loan shortfalls in a small minority of cases when deficiencies are legally and economically available;
Although deficiency suits are still rate, the number of deficiency suits is gradually increasing. The article states, for example, that in Lee County there has been a 34 % annual increase in deficiency suits.
Credit unions and smaller banks are most aggressive pursuers of deficiency claims and account for most of the increase. The article states that the biggest banks are still reluctant to pursue deficiencies.
As I have written previously, various pundits and experts have since 2007 forecast that banks eventually will aggressive pursue deficiency claims. The article quotes one court clerk who expects a “massive wave of these cases as banks start selling the judgments.” A director of a firm that invests in distressed debt states that “deficiency judgments will eventually be bundles into packages that resemble mortgage-backed securities.”
Investors in deficiency claims pay, according to the article, about two cents on the dollar versus the average rate of seven cents for credit card debt. This reflects a market judgment that deficiency claims are much harder to prosecute and collect than typical unsecured credit card debt. In my opinion, this price difference appears to make it less likely that investors will buy and pursue deficiency claims.
Lastly, the article finds that banks are more likely to seek a deficiency judgment when they perceive that the borrower can afford to pay the mortgage and is choosing a “strategic default” because his property has lost value. Many clients considering short selling their underwater property ask me about complying with the bank’s request for personal financial information as a part of their short sale application. In most cases I advise clients not to provide banks with a financial statement, especially one signed under oath of perjury. The bank may conclude from the client’s financial statement that client can afford to pay the mortgage, and if the short sale fails and a foreclosure follows the bank, according to the Journal report, may be more likely to consider a deficiency claim.
