Right of Offset-Yet Another Trick Up The Lenders Sleeve

Home : Blogs : Bob Hertzog Phoenix Short Sale Agent, Designated Broker : Bob Hertzog- Designated Broker, Summit Home Consultants

Right of Offset-Yet Another Trick Up The Lenders Sleeve

Right of Offset-Yet Another Trick Up The Lenders Sleeve

Folks, this is scary stuff. Yesterday, I received a call from one of my clients, telling me that her bank recently withdrew money out of her account to pay part of her missed mortgage payments. We are in the middle of the Arizona pre foreclosure process, trying to conduct a short sale on her home, and she happens to bank at the same institution that holds her 1st Mortgage.

Banks have what is called a "right of offset", which allows them to take money out of your account, without your prior approval or knowledge. The Comptroller of the Currency Administrator of National Banks says the following:

Generally, a bank may take money from your deposit account to make a payment on a separate debt that you owe to the bank, such as a car loan, if you are not paying that loan on time. This is called the "right of offset".

In some situations, the bank can exercise the right of offset without letting a customer know in advance that it is going to do it.

However, federal law limits what a bank can do in some cases. For example, federal law won’t allow a bank to offset your deposit account to pay off your consumer credit card account.

trick up sleeve

As soon as I'm finished writing this post, I'm going to start calling my clients, advising them of this "right of offset". Time to move your money!

If you are listing short sales, I would suggest you do the same.

Subscribe To This Blog Via Email

Bob Hertzog

Summit Home Consultants

Visit The For Sale Phoenix Homes Website

Bob Hertzog

Designated Broker-Summit Home Consultants

http://forsalephoenixhomes.com

Posted by Bob Hertzog Phoenix Short Sale Agent, Designated Broker on 08/21/2010 05:37 PM

Comments (55)

Right of Offset in the Home Selling Channel

right of offset, short sale, missed mortgage payments, arizona pre foreclosure

Originally posted at: THE HERTZOG BLOG: Right of Offset-Yet Another Trick Up The Lenders Sleeve

Generate short URL

This post has been included in Arizona Real Estate News Maricopa County, AZ Real Estate News Phoenix, AZ Real Estate News
Post is included in group: Short Sale Support Group
Post is included in group: Short Sales Specialists
Post is included in group: Short Sale Specialist Network
Post is included in group: Short Sales and Forclosures ONLY
Post is included in group: Short Sale REALTORS®

55 Comments on Right of Offset-Yet Another Trick Up The Lenders Sleeve

AUG

2010

Good to know Bob! Thanks for the info, it would only make sense that they would do this..they see the money there and the consumer owes it to them...they want to be the first ones paid!

Bob - thanks .... and I will! Both call my clients, put this info in my short sale listing package and write a letter to my US Senators .... This is an issue that the real estate associations should ALL get behind ... and get letters moving to Washington ... Again, thanks for bringing it to our attention ...

Doesn't that just make you furious? Those loopholes are always in the fine print. We definitely need to give others the "heads up" on this one. Think of the single mother with children to feed and the bank drains her checking account....

I've heard of this before but haven't had a client that has experienced this. It's always something!

Hi, Bob, yes this is very real. Change banks if lender is same.

They may have the right, but it also takes chutzpa!

Thanks for the comments folks. I think it's very important to share this when taking on a new listing.

That is good information to know. I wonder if it works that way if you have a loan with one bank, where your money is held, but they give the short sale to a 3rd party processing company?

AUG

2010

Great question Marcy. Perhaps someone else can answer it.

Bob, this is part of my short sales listing presentation. ..who do they bank with?. . I have saved my clients a lot of money before with this.

. .and yes, the banks have the right to do it!

Bob, I have been telling my sellers this for months now. If their money is in the same bank as their delinquent mortgage they need to take it out asap. The banks have the right to do it but this is certainly the last thing a person needs whio is already suffering a financial hardship..

AUG

2010

A lady in our town went to a bank to cash a check... said bank had a judgment lien against this lady... they kept the check and claimed the proceeds. Duh!

Seems the best course of action is to have an account at a local credit union, and keep the money there. Chase, Wells Fargo, and BofA, all try this nonsense. This often causes an even larger hardship for an already strapped homeowner. Just another way for the banks to "help us out of the recession".

Wow. Thanks Bob

And because she wasn't prepared, perhaps the other payments and/or purchases she's made may bounce? The bank will ding her for insufficient funds I'm guessing.

Thanks for the info.

I think Fernando and Bryant hit the nail on the head. MAKE THIS A PART OF YOUR LISTING PRESENTATION. Find out if they bank at the same institution that holds their mortgage. If they do, move it to another bank. I've heard "rumblings" of this in the past, but this is the first time it's actually been done to one of my clients.

Wow that is important information to get out to the community. I love ActiveRain! Although the loophole makes sense it is still seemingly dirlty.

Frustrating for sure. But not all that surprising. The banks are in fact due that money. Rude though that they don't have the decency to let the customer know.

Thanks for the heads up.

So the mortgage and the accounts have to be with the same bank?

Thank you much!!

care to share who it was?

Jay, I'd love to share who it was, but my client insisted that if I blogged about it, I keep the name of the lender "under-wraps". She's fighting to get her money back, and is afraid of retribution. Perhaps when/if we come to a solution, I'll be allowed to share it with everyone, as they are not one of my favorites to deal with.

This is one for the books. I'll be adding it to my short sale presentations. Thanks for sharing.

Bob - it is something to make your clients aware of, but, we certainly shouldn't be advising them to move their funds.

I had business + personal accounts at Wachovia and they did this to me. I closed my business accounts and was disputing something. They instead took it out of my personal account. But in response I closed all Wachovia accounts and refinanced my mortgage out of Wachovia.

Thanks for the insite .... active rain makin me stronger at what I do. Thanks AR

Thanks for sharing this Bob, we can help a lot of people by spreading the word.

Point well taken Mike. Probably best to advise them of the possibilities, then let them make the obvious decision to move their money on their own.

Eric (19), they may be in fact "due that money", but it's scary to think that they have the right to clean out a person's checking account with the home being the collateral. If they were entitled to more than simply foreclosing on the home, and they could take money from other borrower sources, I could see how this would make sense. Instead, they are taking advantage of a loophole that not many borrowers/bank customers were aware of when they signed up, without the consent of the borrower/customer.

One of my clients just called and asked a great question. She and her husband bank and have their mortgage at the same bank, and we are handling a short sale for them. They have already moved everything to another bank, but still have a business checking account (with other partners on the account) at the same lender.

Does anyone know if the bank could take money from a business account that is held in conjunction with other partners? Erica, perhaps you know the answer?

This is not only fantastic information for our clients but also anyone facing hardship. Credit worthiness is important to even open an account with an institution, so prior to getting in this awful position, we should all be aware of this. This could mean the difference between eating and paying the important bills for some people.

I've wondered about this exact situation and I am so glad to see a referrance to it here on Active Rain. Thank you so much for sharing this information! I am going to re-blog this and share it on my personal blog as well.

Thanks for this info. I am assuming that the bank and the mortgage lender must be the same or can the mortgage company take the money from the seller's bank if they are not the same?

That's why when you take out a HELOC, they usually make it so nice to sign up for a checking account. This is why they do it. I saw this a few years back and I made sure I have multiple banks. I think it's best to leave as little as possible in the bank anyway. They could declare a bank holiday at any time and where would that leave you?

This isn't new... it's been around for decades, from what I have been told...

It's the first time I've heard of it - Thanks for sharing - and definitely somethine we need to share with our clients.

I never give clients financial advice however, I have mentioned that I have several bank accounts and move money around as needed. (Hint, hint.)

I have had this happen to one of my clients. It has become part of my listing presentation to my short sale clients. If you have it, they will find it, especially if you leave it in their bank. Don't!

This is sorta strange but I guess if the bank has the money and is owed the money, they can take it. I'm not sure how I actually feel about it.

This happened to my hair dresser. I was having my "naturally blond" hair streaked (If you believe that, I gotta bridge to sell you!) and she was telling me that she was trying to work with the "make home affordable program." Total nightmare...her secondary mortgage is held in a bank sighted as a prime offender and they tried to take the money from her account.

Obviously, the field she works in is cyclical. After all, when I get slow - I magically turn less blond and more brunette - amazing how that happens. Only when it starts to look tacky, do I have something done. I'm sure most of us let our hair grow out a bit too. I know that I do. I just "make it work" until l it can work no more. Multiply that by about 60 clients and you see the problem. Right now she's working a couple of different jobs alongside her usual practice. But things are very tight. Just taking that money could be devistating and can spell the difference between eating and not.

Seriously - its not funny. When we cut back - often it is the local merchant or service provider that is hurt the most. Then the bank just makes sure they are even in more trouble....LOVELY.

Bob -- You come up with the most interesting stuff and the impact is huge. I wonder how many bounced checks could then occur for an unsuspecting homeowner that the same bank would then turn around and charge an overdraft fee.

now that is great information

thanks for sharing

great to have another arrow in the quiver

Thanks for sharing this info - scary as it is! At least we can help spread the word so our clients can think thru where they may want to keep their money.... And I'm thinking that my grandmother's theory of having some gold buried in her back yard wasn't all that crazy after all!!

AUG

2010

Great comments folks, and I hope all of you share this with your clients. Thanks again for taking the time to share your thoughts.

This seems very scary to me. On one hand, they are owed the money. But, what if an owner just lost a job and needs the money for medical issues?

Right of offset has been around for decades, it does not apply strictly to banks but credit unions (governed by NCUA) as well, but credit unions CAN offset for a "credit card". The prior knowledge is in your disclosures when you opened the account(s). Seems silly but if they told you in advance they were taking it then you would have beaten them to the money.

Also, keep in mind if you are a joint account holder for your kids or even for your parents (I see this a lot with "estate planning") they CAN take that too. Most times I would say you would have to be over 30 days delinquent as a courtesy before they would "help themselves" but there is no rule that I know of. Some lenders may "freeze" your funds on your debit activity to get your attention and get you to call to make arrangements for the delinquent account. If you are dealing with a short I would advise moving accounts permanently but if a one time late you could probably just call them before you default for other arrangements.

Not much different than the IRS keeping a tax return for unpaid taxes from a previous year or even for a defaulted Federal student loan.

There would be an exception to the right of offset if a bankruptcy was involved as it could be an attempt to collect in that case speak with the attorney.

Thanks for commenting Corri. Any thoughts on if a business account with other partners that are not related to the mortgage can be raided?

Bob,

It shouldn't matter joint owner carries the same weight and whether in first position or second makes no difference but I would review the disclosures on the business account to see if the verbiage varies... ps I am not an attorney ;)

Those sneaky bastards... I'm guilty myself next to repossession right of offset was one of my favs.

I can tell you from personal experience that YES lenders will do this...even if not in foreclosure or short sale!

Offsets have existed in many Canadian financial institutions for a long time. It is in the fine print when you open up various types of accounts including bank accounts.

I suppose if there was a personal guarantee on the business loan they can take it. In my case it was a business checking account. I closed the business down and shut my business accounts. But a credit card machine tied to the checking kept hitting my account (after I closed it) for $15 / monthly fee. Nobody from the bank called me to say the card machine company was still hitting me for the fee. Every time the card company tried to take the $15, Wachovia charged me $35 NSF fee. This occcurred for about 2-3 weeks, almost every day. I racked up over $350 in fees this way: $15, rejected, then $35 NSF. I then got a statement in the mail on the CLOSED account demanding the money. I refused to pay. They sent it to collections. I didnd't pay. So they took it out of my PERSONAL checking account.

Just another way to be screwed over by the banks. Thanks for the tip and warning.

Bob: I've often wondered in the past if banks could do this. I'm not at all surprised. A very good point to bring up with clients during consultation. Thanks for the head's up!

SEP

2010

Grateful for being led to your post and this information! Thanks Bob!

Bob - great information for everyone out there! If I'm not mistaken the same thing can happen if you are filing bankruptcy and you have a credit card balance or other loan at your own bank that you are including in the bankruptcy.

This is really bizarre. It just figures that a new law trying to restrict some of the banks nasty practices takes effect, and all they do is invent new ideas to take advantage of their customers. The game continues.

This blog does not allow anonymous comments

Bob Hertzog Phoenix Short Sale Agent, Designated Broker

Phoenix, AZ

More about me…

Summit Home Consultants

Address: 7702 E Doubletree Ranch Rd., Suite 300, Scottsdale, AZ, 85258

Office Phone: (602) 957-1583 x 5

Cell Phone: (602) 909-5994

Email Me

Testimonials

Bob recently helped my family purchase a short sale condo property in Scottsdale. Since we live in Colorado, we were glad to have a local expert like ... more

5.0/5.0

by LRWolfgang

Bob Hertzog represented me as a buyer in a short sale transaction. I have been involved in many real estate transactions over the years and Bob ... more

5.0/5.0

by Mike Arizona

No words will describe how grateful my family and I are for Bob Hertzog's expertise during a complicated short sale of investment property. After ... more

5.0/5.0

by ronaldabidog

My homes for sale in Phoenix

Listings

Links

Archives

Find AZ real estate agents and Phoenix real estate on ActiveRain.

Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.