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."
Many people who have that particular set of beliefs (from the Dave Ramsey “no debt” school of thinking) learned the hard way how debt can destroy a life. It typically isn’t smugness — just confidence in the principles by which you live.
Personally, I will never borrow another nickel with the possible exception of a home loan — and that will be with a large down-payment and a quick payoff. But, I’ve made a number of mistakes in the past ... some that I am still paying off.
Sometimes you have to get burned to learn how to not let it happen again. I hope the people referenced in the article are learning a lesson from this.
SnakeDoc
True enough. The wife and I don’t bank separately — but we have several accounts in several institutions.
SnakeDoc
But don’t you feel sorry for them? —————————————— When considering so many other cases out there of people who lived within their means for many years only to have uncontrollable hardships, no. Two homes, cash out loans, second loans etc. it sure looks like they lived their lives on credit. Usually those who take second mortgages are living above their means.
Without a job or income, no one can pay any loan back. Since we never know when and if we are going to lose a job or income, no one can ever borrow any money for any reason. Using your logic. Such that it is.
>> And yet these jokers ignore what is happening and condemn the individual simply trying to work for a living.
Some may characterize that particular lifestyle as “borrowing for a living”. Living beyond your means is never a good idea. Planning for a rainy day is always smart.
If these individuals had borrowed less, and saved rather than spending every nickel they made (and more) — they would be better able to weather the storm. This is not without sympathy for their situation — but part of dealing with a trying time is learning what you did to get yourself there, and how to avoid it in the future. Many crises that are completely out of your hands can be weathered with prudent planning.
This is also not to say that I haven’t made some similar mistakes ... only to say that they were stupid mistakes when I made them, and stupid mistakes when they made them.
Live and learn.
SnakeDoc
I agree with your post 100%. Some Freepers seem to live in the same state as my toddler. If I close my eyes, you can’t see me. If they aren’t experiencing difficulty, no one else is or it is completely their fault.
Back in 2001, my daughter and her husband bought a home for $160K, Over the next few years its value inflated to over $500K. At every opportunity, they refi’d. When their last subprime loan reset, they could no longer make their payments. Somehow they ended up owing about $550K. They lost the house thru a short sale for $275K. So over a few years they took out nearly $400K. Of course, they did have new SUV’s, RV’s, off-road toys, a boat and expensive vacations.
“If these individuals had borrowed less, and saved rather than spending every nickel they made”
When the very foundation of the system is rotting away what does it matter whether they had borrowed too much.
The banks made this mess. They ENCOURAGED people to live that lifestyle. Remember Visa and the priceless vacation add?
“Many crises that are completely out of your hands can be weathered with prudent planning.”
Or at least you can soften the blow. Certainly borrowers have some responsibility. Many posters continue to ignore the blatant and ongoing fraud taking place within the financial industry.
Thanks for the ‘call out.’ Alot of intolerance of people who are trully hurting. Condemnation reigns.
Some of them probably don’t have the money to go bankrupt. The new bankruptcy laws mandated a larger amount that has to be prepaid to attorneys and the courts before they can file. If they had money problems and their bank accounts were frozen, they may not have had the money to file.
I think it is interesting how the new laws regarding bankruptcy were enacted only a couple of years before the bubble burst. Those attorneys are such Kreskins.
We’re living the Dave Ramsey school of thinking. Unfortunately, we can’t get past the getting out of debt phase because we keep getting hit with emergency after emergency. The $1000 emergency fund never covers our emergencies. That just means we have to buckle down even more and try even harder. I have to admit I enjoy the challenge of living as frugally as possible most days.
Why....it is ordinary business
ROTFL
That's the funniest stuff I've read here on FR!!
Some of us **somehow** managed to escape that lifestyle. I wonder how that happened? Could it be, uh, personal responsibility?
I wonder how the holders of the primary mortgages feel about this idiocy.
MAYBE I'M WRONG, but we are discussing the people involved in this article, and the author, and all three of them explicitly state that this is an example of "WHAT NOT TO DO".
This couple is the very people implied in your very own tagline, softwarecreator (Where's my free house, car, etc?)
Careful now, it seems that personal responsibility ISN'T what a lot of people on this thread feel is important here. There are a lot of people advocating empathy for the subjects of the article, even though the math doesn't make it look like a lot of good financial decisions were made.
All of Congress and most of their staff comes to mind.
Good point. And there is another side to that, too. Someone pointed out last week that the new bankruptcy laws actually helped fuel the bursting of the bubble. Previously, a borrower could use bankruptcy proceedings to deal with other forms of debt while continuing to make payments on the thing that most for most people (their homes).
According to this Freeper last week, the new bankruptcy laws actually make a home mortgage the easiest thing to walk away from for most people facing financial difficulties.
And their bank encouraged that behavior. If the bank wanted to loan the money thats their business. Likewise the bank should bear the reward for their poor decision.
A very excellent point!
There are always two sides to a story.
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