Years after Loan Default, Homeowners May Still Owe
Friday, March 26, 2010
Homeowners defaulting on mortgages today may be surprised to learn years from now that they still owe thousands of dollars - and a collection agency is coming after them to get it.
“How is that possible?” you ask. Because lenders have been quietly selling second mortgages and home equity lines left unpaid after foreclosures and short sales. The buyers: collection agencies!
But what makes matters even scarier… these agencies can wait however long the term of the loan is to sue (15 years, 30 years, etc. whatever the term is) plus an additional 6 years after that.
Once obtained, a judgment is good for 7 years and can be renewed twice for up to a total of 21 years. So, if you have 20 years left on a second mortgage, the holder of that note could, theoretically, sue you on it 26 years from now (20 plus 6) in the year 2036. The judgment would then be good for up to 21 years from then, which brings us to the year 2057. (I would be 101 years old by then…)
Now, I don’t know that anyone would wait around that long to do this, but they could per current laws.
People who only had a first mortgage on the house in which they lived generally have little to worry about. But borrowers who defaulted not only on their first mortgage but also on a home equity loan or second mortgage are in peril. So, unless something changes, this may cause an ominous, looming echo of today’s real estate meltdown for decades.
This is a lucrative business and investors are coming out of the woodwork. Real estate insiders and financial players are calling it “scratch and dent.”
Owners are generally, but not always, on the hook for the second loans left over from a foreclosure or short sale. Most investor mortgages, too, leave the borrower liable for potential unpaid debt. In many short sales, experienced short sale specialists who have a mortgage license or attorneys can negotiate away debt obligations for the second mortgage. But many inexperienced borrowers don’t know that, and sign final-hour agreements giving lenders the right to pursue them later.
As you may have heard, currently it is a Federal crime for non-mortgage licensees to negotiate with Lenders. So, it is in an agent’s best interest to refer them to a real estate attorney or a mortgage mitigation specialist for advice and to negotiate with the Seller’s mortgage holders. And let the agent do what we do best - sell homes.
Finally - Government forces have moved to limit potential damage to millions now struggling with home loans. A new short sale program aims to prevent banks that hold second-lien loans from pursuing collections from homeowners after the short sale. It goes into effect April 5, 2010 and works this way: Sellers will receive notice that their servicer has steered part of the sales proceeds to secondary lien holders “in exchange for release and full satisfaction of their liens.” However, this release would apply only to short sales done through the administration’s Home Affordable Foreclosure Alternatives program. Lenders could not seek court judgments to collect from these borrowers in the event of foreclosure or short sales.
- Scott Askew
Posted in: Intown Atlanta Real Estate News