Right of Offset-Yet Another Trick Up The Lenders Sleeve

By
Real Estate Broker/Owner with Summit Home Consultants
https://activerain.com/droplet/4wzY

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.

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Bob Hertzog

Summit Home Consultants

Visit The For Sale Phoenix Homes Website

Copyright © By Bob Hertzog 2010 *Right Of Offset-Yet Another Trick Up The Lenders Sleeve*


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Re-Blogged 16 times:

Re-Blogged By Re-Blogged At
  1. David Krichmar 08/23/2010 10:34 AM
  2. Scott Patterson, ACI 08/23/2010 10:45 AM
  3. D B 08/23/2010 10:55 AM
  4. Robert Jarvis 08/23/2010 01:58 PM
  5. Ralph Janisch ABR CRS Broker 08/23/2010 02:21 PM
  6. Lane Bailey 08/23/2010 02:26 PM
  7. Diane Williams 08/23/2010 02:28 PM
  8. Fran Gatti 08/23/2010 07:34 PM
  9. MichelleCherie Carr Crowe Just Call...408-252-8900 08/23/2010 07:40 PM
  10. Maria Mastrolonardo 08/24/2010 01:33 AM
  11. Gene Riemenschneider 08/24/2010 05:53 AM
  12. Gene Wunderlich 09/02/2010 08:32 AM
  13. Zully Tower 09/02/2010 09:28 AM
  14. Brian & Marie Spray 09/02/2010 09:39 AM
  15. Bob & Leilani Souza 09/02/2010 09:48 AM
  16. Damon Gettier 09/02/2010 03:16 PM
Topic:
Home Selling
Location:
Arizona Maricopa County Phoenix
Groups:
Short Sales and Forclosures ONLY
Short Sales Specialists
Short Sale REALTORS®
Short Sale Support Group
Short Sale Specialist Network
Tags:
short sale
missed mortgage payments
right of offset
arizona pre foreclosure

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Show All Comments
Rainmaker
134,281
Marcia Kramarz
Re/Max Executive Realty - Medway, MA
CDPE,LMC,CBR

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

Aug 23, 2010 02:26 PM #35
Ambassador
942,651
Suzanne McLaughlin
Sabinske & Associates, Inc. (Albertville, St. Michael) - Saint Michael, MN
Sabinske & Associates, Realtor

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

Aug 23, 2010 02:34 PM #36
Rainer
158,078
Carol Pease
JP & Associates Realtors - Bastrop, TX
CRS, Broker-Associate 512-721-6320

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!

Aug 23, 2010 02:41 PM #37
Rainmaker
1,138,513
Barbara S. Duncan
RE/MAX Advantage - Searcy, AR
GRI, e-PRO, Executive Broker, Searcy AR

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.

Aug 23, 2010 02:57 PM #38
Rainmaker
718,163
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

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.

Aug 23, 2010 02:59 PM #39
Rainmaker
564,419
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

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.

Aug 23, 2010 03:15 PM #40
Rainer
94,133
Vince McEveety
Gilleran Griffin Realty - Sherman Oaks, CA

now that is great information

thanks for sharing

great to have another arrow in the quiver

Aug 23, 2010 03:19 PM #41
Rainmaker
631,387
Nancy Conner
Olympia, WA
Olympia/Thurston County WA

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 23, 2010 04:43 PM #42
Rainer
230,875
Bob Hertzog
Summit Home Consultants - Phoenix, AZ
Designated Broker

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

Aug 23, 2010 05:01 PM #43
Rainmaker
444,479
Catherine Ulrey
Keller Williams Capital City - Salem, OR
Equestrian and Acreage Property Specialist

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?  

Aug 23, 2010 05:39 PM #44
Rainer
59,046
Corri Klebaum
Finance of America Mortgage - La Grande, OR
NW Mortgage Pro

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.

Aug 23, 2010 06:33 PM #45
Rainer
230,875
Bob Hertzog
Summit Home Consultants - Phoenix, AZ
Designated Broker

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

Aug 23, 2010 06:41 PM #46
Rainer
59,046
Corri Klebaum
Finance of America Mortgage - La Grande, OR
NW Mortgage Pro

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.  

Aug 23, 2010 06:50 PM #47
Ambassador
2,267,104
MichelleCherie Carr Crowe Just Call...408-252-8900
Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

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

Aug 23, 2010 07:38 PM #48
Rainmaker
1,157,329
FN LN
Toronto, ON

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.

Aug 23, 2010 11:17 PM #49
Rainmaker
1,431,803
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

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

Aug 24, 2010 05:53 AM #51
Rainer
112,137
Cari Anderson
Danville, CA

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!

Aug 24, 2010 06:11 AM #52
Rainer
6,490
Zully Tower
Farnam & Associates Real Estate - Temecula, CA
Property Manager, ACRE. Realtor

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

Sep 02, 2010 09:23 AM #53
Rainmaker
97,258
Brian & Marie Spray
www.DFWAreaRealtors.com - Action Realty Group - Frisco, TX
Frisco TX Realtors

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. 

Sep 02, 2010 09:36 AM #54
Rainmaker
156,354
Carolyn Kolba
Serving Mentor, and all of Lake County, Ohio - Mentor, OH
Keller Williams Realty- Mentor, Ohio

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.

Sep 02, 2010 10:22 AM #55
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Rainer
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Bob Hertzog

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