You're in debt up to your eyeballs. You can't keep up with the mortgage and you are going to lose your home. It doesn't get any worse than that, right? Wrong.
Lawyers for troubled Staten Island homeowners say they are beginning to see examples of clients who go to the bank to take out money and find that their accounts have been frozen or wiped out by other banks or debt collectors -- the entities holding second mortgages on houses already in default on the first and primary mortgage. Some are learning the lender or debt collector has already gone to court and secured a judgment to garnish paychecks.
It's a move more in line with the traditional debt collection industry, which typically targets credit card debt, and it's dragging the house and what little cash reserves people often have into the foreclosure battleground. Experts say it's an end-run by second lien holders around the traditional foreclosure process, which involves only the first mortgage holder and provides important legal protections for the homeowner.
In the proud American tradition of never giving a sucker an even break, collection agencies are busy sucking the last of the blood from the corpse of the American working class.
George Apolinaris of Graniteville said his longtime companion, Maria Gil, got an unwelcome surprise when Ms. Gil tried to withdraw some money for groceries from two small bank accounts totaling $6,000 that the two maintained. The accounts were frozen and in the red for $250,000 -- twice the $126,000 owed on their second mortgage.
Apolinaris said the couple never received any notice about the court action that froze the bank accounts.
The banks, many of whom have gone out of business, have often sold these second mortgages to collection agencies at pennies on the dollar. The collection agencies have no stake in the original mortgage and therefore see it as good business to see these people lose their homes as long as they can collect on the second mortgage debt.
Getting screwed out of saving your home from foreclosure isn't the worst thing that can happen. Sometimes foreclosure is the best thing.
How is that possible? Consider the example of Mercy James of South Bend, Indiana.
Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff’s sale had been set, and notices about the foreclosure process were piling up in her mailbox.
Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss.
So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff’s sale had been canceled at the last minute, leaving the property title — and a world of trouble — in her name.
“I thought, ‘What kind of game is this?’ ” Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it — another bill for which she will be liable.
It's called "bank walkaway", and its happening all over the country. These properties aren't worth the cost of the foreclosure process and maintenance fees. Sometimes it isn't clear who actually owns the deed on the house.
In Buffalo, where officials said the problem had reached “epidemic” proportions in recent months, the city sued 37 banks last year, claiming they were responsible for the deterioration of at least 57 abandoned homes; the city chose a sampling of houses to include in the lawsuit, even though the banks had walked away from many more foreclosures. So far, five banks have settled.
Obviously if you play chicken and wait for the sheriff to show up on your door, then you win. You may never have to pay on your mortgage. But who really wants to do that?
Sometimes people are finding out as much as five years later that they still own the home. And with that property comes all the back taxes and fines, neither of which can be walked away from.
The GAO has opened a study on this problem, but a solution is still a long ways away.