Banks Pursuing Deficiency Judgments May Have Something To Fear

An article in the Washington Post describes how banks pursuing deficiency judgments may have something to fear. According to the article, some lenders are taking a more aggressive stance in dealing with distress sales that recoup significantly less than the original loan amount.

In the past, the cost/reward ratio caused few lenders to seek deficiency judgments, but the practice has become more widespread as lenders incur greater looses due to increasing numbers of foreclosures and short sales. According to the MBA, banks are not pursuing those who lack the ability to repay; and lenders participating in the government’s HAFA program waive their rights to deficiency judgments. But for homeowners who have chosen “strategic default” who or appear to have the financial resources to make full or partial restitution, many banks are seeking to recoup some of their losses.

To counter such actions, a growing number of homeowners are seeking bankruptcy protection as a means of vacating additional liability, and personal bankruptcies have recently soared. Others, however, have discovered a different route. Aware that their lender may have participated in mortgage fraud in qualifying them for a loan, some have successfully presented that as a legal defense. The potential consequences of such actions brings pause to bankers, fearful of being implicated in anything resembling mortgage fraud, and aware that judges may not only rule in the borrower’s favor, but seek further redress from the lender. An interesting post on Calculated Risk  provides an insider’s view.

The moral and legal issues that have surfaced during this housing crisis are many, and it is impossible to develop all-encompassing solutions. While some have suffered the loss of their home, the losses for others have been even greater, yet such victims are often ridiculed for imagined behavior and often by those who know nothing of the circumstances. As homeowners struggle with the consequences of their actions, my advice would be to make every effort to seek an amicable resolution with their lender, and if that fails, to make the best choice given their specific financial circumstances. Any who believe their lender may have acted illegally, should consult an attorney.

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