Florida Asset Protection : Asset Protection Law & Planning in Florida - Florida Homestead Exemption

I did an interview with a reported from the Palm Beach Post about personal liability for deficiency judgments. The interview was part of an article published on Saturday, June 12, 2010, about debt collection firms which buy claims against homeowner’s who defaulted on home mortgages.

The article features a New York based company called Deficiency Judgment Recovery Network ("DJRN"). DJRN that is buying pools of deficiency claims from mortgage lenders for pennies on the dollar. The article states that this collection company is going after people who could afford their mortgage but who stopped payments because their property was upside down in value: the so-called strategic defaults.

I have not heard from any of my clients that they had been pursued by a third-party collection firm to pay a claim related to their strategic mortgage default. I have not heard from any other attorney that DJRN has sued or threatened to sue their clients. The article says that entrepreneurs will start buying up mortgage delinquencies and that "it’s going to be a blood bath." That’s possible, but it’s also possible that these collection speculators may find that their rate of collection does not justify going to court to prove the amount of a deficiency claim.

Anybody with access to a computer keyboard or to a newspaper reporter can publish their opinions about deficiency collection, but no one knows for certain what other people will do in the future. The fact that I have not seen large amounts of deficiency collection by third-party investors leads me to believe that investment in deficiency claims may not be profitable.

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The Wall Street Journal published an article this past Tuesday by James R. Hagerty on "strategic mortgage defaults." Aa "strategic default" occurs when a homeowner who can afford to make mortgage payments decides to stop paying and allowing the bank to foreclose. The article states that strategic defaults are often motivated by "anger, fear or despair." Mr. Hagerty states that strategic defaults may be rational response by underwater homeowners. In any event, the percentage of mortgage defaults by people who could afford payments has risen substantially in the past two years. The article suggest ways to reduce strategic defaults.

In my asset protection practice I have consulted with many, many people about the consequences of voluntary mortgage defaults. In most, but not all cases, I have advised my clients whose homes are substantially upside down in value to let the bank foreclose rather than deplete retirement funds and savings accounts. Up to now, this advice has turned out well for most, if not all, of my clients facing foreclosure. I and my clients have found that most large banks are not aggressively pursuing either deficiency claims or the collection of deficiency judgments.

One change that would deter "strategic defaults" is the mortgage lenders getting much tougher pursuing deficiency judgments. People believe that if they default on a credit card or car payment the creditor is likely to sue them for the money; people are not as afraid of mortgage lenders. I know, from speaking with people in the banking industry, that mortgage banks have good reasons for not aggressively pursuing collections of homeowners’ personal liability on mortgages.

When mortgage lenders have had enough strategic defaults; when they want people to exhaust all their money and assets before they walk away from their mortgages, I think one of the first things the lenders should do is get tough and get mean. People act rationally when they voluntarily withhold payments to lenders whom they do not fear.

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