Archive for October 13th, 2011

Garnishing Wages – The Concern About Deficiency Judgments

Many homeowners may not realize it, but in states like Florida, banks can collect additional money from you after a foreclosure lawsuit, even after the foreclosure is over and long after you’ve been evicted.  By way of example, suppose you owe $400,000 on your home and you stop paying your mortgage.  By the time the bank gets a Final Judgment of Foreclosure, to include interest, attorneys’ fees, and costs, that number will likely be more like $500,000.  (Everyone always under-estimates the impact of default interest on the total amount owed.)  Suppose the home is worth $200,000.  When the bank forecloses, it will have collected just $200,000 of the $500,000 you owe.  The remaining $300,000 is called a deficiency.  Even after being evicted, you still owe that money.  Even after the foreclosure, the bank can chase you down to collect that $300,000. 

If you’re not sure what I mean, go look at a Final Judgment of Foreclosure in any (closed) court case.  Chances are, it says the court “reserves jurisdiction” to award a deficiency.  This means, in layman’s terms, the bank can come back to the court in the future and ask the court to enter a deficiency judgment against that homeowner. 

Don’t get me wrong – nobody wants to be foreclosed.  But for many homeowners, avoiding a deficiency is the primary goal.  Many homeowners can accept getting foreclosed so long as they don’t owe the bank more money after the foreclosure is over. 

I’m convinced most homeowners don’t realize the magnitude of the problem vis a vis a deficiency judgments.  Many clients have told me “I don’t have anything the bank can take.”  In many cases, that’s true – you can’t get blood from a stone. 

However, it’s not that simple.  Once a foreclosure case i over, all the bank has to do is obtain the deficiency judgment and record it in the public records.  This is like any other judgment in any lawsuit – it’s the court’s way of saying “homeowner owes this money to bank.”  And here’s the problem – that judgment doesn’t just go away.  Money judgments are valid in Florida for up to 20 years.  20 years!  And they accrue interest at a statutory rate (currently 6%, but often as high as 10% or more).  After 10 years, that $300,000 judgment can be $450,000 or more, easily. 

Some homeowners still scoff, saying “the bank can never collect from me.”  My response to this is simple – ”are you sure?” 

By way of example, the Second District Court of Appeal just issued an opinion, hot off the presses, which should scare the daylights out of all Florida homeowners.  It hasn’t made headlines among foreclosure defense advocates because it’s not a foreclosure case, but take a closer look.    

In the opinion, the Second District explained that USAMERICABANK was entitled to garnish the wages of Richard Nelson Klepal, Jr. even though he was the head of household because the promissory note he signed with the bank expressly authorized it to do so. 

The “head of household” exception is an often-cited reason why homeowners think a bank won’t be able to collect a deficiency judgment against them.  “I have children, and I’m the head of household, so the bank can’t garnish my wages.”  Yes, that’s the layman’s explanation, but, regrettably, it’s not that simple.  As the Second District just yesterday, if you consented to the bank garnishing your wages in your note/mortgage, then the bank can garnish your wages even if you’re the head of household.  

With that, I ask – how many homeowners reading this know whether their note/mortgage allows the bank to garnish wages?  I suspect the number, if it’s not zero, is darn close.  Scary, eh?  And remember – even if you are currently the head of household, and even if your note/mortgage doesn’t allow the bank to garnish your wages, what is going to happen when your children grow up and/or you aren’t head of household any longer?  Remember, deficiency judgments are valid for twenty years, accruing interest each year. 

My point isn’t to scare anyone.  Rather, I’m trying to educate homeowners so they don’t find themselves in the predicament in which Mr. Klepal found himself.  Quite simply, don’t ignore a possible deficiency judgment against you.  And don’t assume the bank won’t be able to collect on its judgment.  Even if you’re the head of household now, even if you’re unemployed or earning very little income now, twenty years is a long time.  Chances are, your circumstances will improve at some point in the next twenty years, especially if you’re currently 65 or younger.  (As I’ve said before, deficiency judgments are less of a concern for the elderly.  But anyone still in the work force should try their darndest to avoid one.)

So what should you do?  Simple.  As part of fighting your foreclosure case, strive to avoid a deficiency judgment in one of three ways: 

1.  Settlement.  Every case is different, but it’s certainly possible to get the bank to agree to waive the right to collect a deficiency as part of a settlement of the foreclosure case … if you fight.  If you make it easy for the bank, you won’t get this sort of agreement.  But if you fight, and make it difficult for the bank to foreclose, it stands to reason you have a better chance at convincing the bank to waive a deficiency.  In doing so, you may get foreclosed, but at least you won’t owe the bank more money after the foreclosure is over. 

2.  Bankruptcy.  Yes, it’s a dirty word for some, but bankruptcy is a totally lawful way to eliminate debt.  If the bank won’t agree to waive a deficiency, a Chapter 7 or Chapter 13 bankruptcy is a far better option than letting a bank garnish your wages or collect a six-figure judgment against you for the next twenty years. 

3.  What happens if you can’t get a settlement with the bank and aren’t a candidate for bankruptcy?  Simple – asset protection.  This is complicated, and beyond the scope of this blog.  But I talk with homeowners about this regularly.  If you have assets, and are facing a potential deficiency judgment, make sure you talk to a lawyer who can counsel you on asset protection strategies.  This may sound shady, but rest assured – there are perfectly lawful things you can do to protect your assets from creditors.   

Fighting to avoid a deficiency isn’t as fun or sexy as talking about “foreclosure fraud” or “robo-signing.”  But it’s a very practical approach for many homeowners, allowing them to move on with their lives without a bad investment haunting them for years to come.  Please don’t under-estimate the importance of this aspect of your foreclosure case.

Mark Stopa

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The “Occupy” Movement

This would be funny … if it weren’t a spot-on illustration of the problems in America. 

I’ve never viewed myself as a radical or an activist, but that’s the thing – the “Occupy” movement isn’t radical at all.  In fact, it seems that the majority of the public views the protests favorably.

I’ve read critiques that the Occupy movement is nothing more than liberal activists wanting something for nothing.  I don’t see it that way.  America’s government and political system has become far too top-heavy, catering to the whims of the socioeconomically elite (the 1%) at the expense of mainstream America (the 99%). 

This movement provides hope for necessary changes.  I like the first two suggestions of Matt Taibbi: 

1. Break up the monopolies. The so-called “Too Big to Fail” financial companies – now sometimes called by the more accurate term “Systemically Dangerous Institutions” – are a direct threat to national security. They are above the law and above market consequence, making them more dangerous and unaccountable than a thousand mafias combined. There are about 20 such firms in America, and they need to be dismantled; a good start would be to repeal the Gramm-Leach-Bliley Act and mandate the separation of insurance companies, investment banks and commercial banks.

2. Pay for your own bailouts. A tax of 0.1 percent on all trades of stocks and bonds and a 0.01 percent tax on all trades of derivatives would generate enough revenue to pay us back for the bailouts, and still have plenty left over to fight the deficits the banks claim to be so worried about. It would also deter the endless chase for instant profits through computerized insider-trading schemes like High Frequency Trading, and force Wall Street to go back to the job it’s supposed to be doing, i.e., making sober investments in job-creating businesses and watching them grow.

Mark Stopa

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