Posted on 12/07/2009 10:58:22 AM PST by Lorianne
A new foreclosure tactic, whereby lenders or debt collectors holding second mortgages freeze bank accounts or garnish pay checks of already struggling homeowners, is emerging and making it even more difficult for people to hold onto their homes.
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.
"It's a fast and dirty process," Margaret Becker, lead attorney with the Homeowner Defense Project of Staten Island Legal Services in St. George, said of the new trend.
So far, she said, she's taken on two cases and she's heard similar stories from other attorneys.
In several emerging tales, homeowners say they learned about the garnishments only after their bank accounts dropped into the negative or paychecks diminished. And that is making it even more difficult for people to pay bills and modify the terms of the first mortgage to save homes from foreclosure. Homeowners being targeted often include the most troubled, or people who are behind on payments and whose homes are worth less than what is owed on the house.
"It just takes their money away so they don't have any money to afford a (loan) modification," Ms. Becker said of those who have been hit with judgments from second lien holders.
She is representing an Arden Heights woman who was talking to her bank about modifying the loan on her first mortgage. Then a debt collector, which bought the second mortgage on the house, won a judgment to garnish 10 percent of the woman's paycheck. That has jeopardized a good shot at a loan modification, said Ms. Becker.
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.
"They claim they handed a notice to somebody, but we don't know who it is," Apolinaris said.
Robert Brown, an attorney specializing in foreclosure and predatory lending cases, argued successfully in court that Ms. Gil had not been properly notified of judgment proceedings by attorneys for lender Citimortgage.
In court papers, Brown noted that the lender's debt collection law firm, Forster and Garbus, had been cited by state Attorney General Andrew Cuomo for problems in serving legal papers to defendants in civil suits, also known as "sewer service."
Last week, state Supreme Court Justice Judith McMahon sided with Brown and vacated the judgment, effectively unfreezing the couple's small bank accounts.
Brown now plans to make a counterclaim under predatory lending laws. He said the couple had fallen behind on their first mortgage but foreclosure proceedings had not yet begun.
"The second mortgage is just that -- it's second in priority, so they are sort of jumping the line and making it impossible for Ms. Gil to pay her first mortgage because they've frozen her bank account," said Brown.
The couple acknowledges their own financial missteps -- the kind that helped fuel the housing crisis.
Apolinaris bought a house in Clifton in 2004 as an investment, refinanced several times and then fell behind on payments after his tenant stopped paying rent and he was forced to evict. That house recently entered foreclosure.
Apolinaris said he used some of the money he took out of that house during those refinancings to buy the two-family home in Graniteville with Ms. Gil.
At the time, he said, both were working and making money and the housing market was booming.
The couple bought the home for $520,000 early in 2006 with an adjustable rate subprime loan from IndyMac bank, which was shut by the government last year. Less than a year later, they said, they refinanced to lower their interest rate and took out $20,000 to pay off credit card debt.
As part of the refinancing, they took out a mortgage in the amount of $464,000 from HSBC bank with an interest rate of 6.8 percent, and a simultaneous second loan from Citimortgage for $126,000. The latter loan came with an interest rate of 9.5 percent. In all the refinancings, the couple never used an attorney.
Josh Zinner of the Neighborhood Economic Development Advocacy Project in Manhattan said some lenders or trusts for banks that went out of business are selling off second mortgages today to debt collectors for pennies on the dollars. Those debt collectors are then going after the homeowners' bank accounts or pay checks to recoup whatever money they can.
"The backdrop to that is there are real fundamental problems in the debt buyer industry," said Zinner. "The combination of the second mortgage problem with all the abuses in the debt collection industry is toxic, and could really create havoc for homeowners who are trying to avoid foreclosure on their primary mortgage."
Don’t borrow money you cannot pay back. Simple.
Curious as to how the lenders do this without court action being noticed by the borrower.
“Don’t borrow money you cannot pay back. Simple.”
I love the black and white world you live in. Where nobody gets laid off, doesn’t get sick, and nothing else bad happens. Where can I get a ticket for that train?
A creditor (except the IRS and student loans) cannot garnish wages or seize bank accounts unless they’ve already sued you and won. Even then, you can bankrupt out of the judgment or settle the judgment before a judgment levy/lien is taken.
This likely is stemming from defaults on second mortgages that are years old (the court process alone can take a year). People being garnished have had likely had ample opportunity to come to another arrangement.
SnakeDoc
This sounds like a story fueled by attorneys in an attempt to scare homeowners. Very slanted to bash lenders and blame individuals for not hiring a lawyer to oversee and take a big $$$ chunk out too.
......homeowners say they learned.....
They lie, looking for sympathy.
What really happened is they ignored a summons and thought it went away. Meanwhile a judgement was entered.
It’s called the right of off set. Never keep all your funds in one bank.
“Never keep all your funds in one bank.”
Hey I vote for never keep all your funds in a bank, period.
That is true for a common creditor, however, the bank can take your funds deposited in it's bank to pay it's self. Always read the fine print.
Better those who borrowed it then us who get stuck otherwise paying for it...
Related
Of course, the government’s potential losses extend beyond the Treasury program. The Federal Reserve, for example, still holds a trillion-dollar portfolio of mortgage-backed securities whose market value is unknown.
http://www.nytimes.com/2009/12/07/business/07tarp.html
AND
Millions More Are At Risk Of Foreclosure Than Anyone Realizes
http://www.businessinsider.com/millions-more-are-at-risk-of-foreclosure-than-anyone-realizes-2009-12
As part of the refinancing, they took out a mortgage in the amount of $464,000 from HSBC bank with an interest rate of 6.8 percent, and a simultaneous second loan from Citimortgage for $126,000. The latter loan came with an interest rate of 9.5 percent. In all the refinancings, the couple never used an attorney.
They also financed lifestyle with debt. House = $520k loans = $464k + $126k = $590k. Paid off $20k in cred car, so $590k - $520k = $70K that they mined out of the house. - $20k to pay off the cred card leaves $50k of cash that they apparently spent on things that they couldn't afford. Sympathy meter for these irresponsible morons = 0. Screw 'em. They deserve to get kicked out for stupidity.
Exacto-rama
But don’t you feel sorry for them?
Banks have been doing some pretty horrible things these past couple of years. I doubt the homeowners are the only ones mistating the truth.
LOL
Many of these people did not borrow over their heads but economic, health or employment changes are forcing them to lose their homes. Yes, some did borrow over their heads ... but not all. If I lost my job or became unable to work, I would probably lose my home too. How many people could have no income and keep their financial situation the same?
Must be nice to sit back with their self-satisfied little attitudes and pass judgements on others.
That is true. Don’t keep money in a bank against whom you defaulted on a loan multiple thousands of dollars.
SnakeDoc
One of those Freepers who live in a bubble cuz nothing bad ever happens to them. Nice attitude.
I cannot wrap my brain around their logic. I mean our govt mishandles the economy. Trillions in wealth are lost to mismanagement by the banks and other financial institutions.
Our govt is spending us into oblivion.
Taxes are skyrocketing. Businesses across the nation are shutting down.
And yet these jokers ignore what is happening and condemn the individual simply trying to work for a living.
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