If you are concerned about the possibility of foreclosure, it is important to understand the consequences you will face. Foreclosure remains on your credit score for at least seven years, making it a challenge for you to obtain new credit and even find alternate housing. When you are struggling financially, every penny counts. It is not surprising that you may worry about your bank accounts after foreclosure. In some cases, the lender can actually seize your savings account and other assets.
Foreclosure is the legal process of repossessing the home after the homeowner defaults on the loan. Foreclosures can occur in or out of the court. If the homeowner has a deed of trust with a power of sale clause, the lender has the authority to sell the property without a court order. Not only will you lose your home, but you will also face significant credit consequences. In some cases, your bank accounts can also be in danger. If you completed an automatic payment authorization agreement, you may have given the mortgage company permission to draft payments from your account. When you default, the company could attempt to withdraw delinquent payments.
Although foreclosure itself does not allow the lender the right to seize bank accounts, the lender may have the right to sue the homeowner. If your state allows a deficiency judgment for the difference between the sale price and remaining loan balance, the lender may choose to seek a judgment. Foreclosure laws outline the requirements for a lender to pursue a judgment. Generally, deficiency judgments are only allowed in judicial foreclosure. Some states do not allow judgments if the home was your primary residency. In other states, a lender has up to five years from the date of foreclosure to file a deficiency suit and up to 20 years to collect on the judgment.
Enforcing a Judgment
If the court grants a deficiency judgment, you are legally required to repay the debt. After losing your home, you may lose other assets including your vehicle, boat or vacation home. If the lender is unable to collect the money owed by placing liens on your assets, your bank accounts may be levied. A levy freezes the account. You are unable to withdraw or transfer funds. The lender will be able to seize the money in the account to pay the debt. Checking and savings accounts are not protected. Certain funds in the account, such as Social Security Income and federal assistance may be excluded. In some cases, your weekly wages may also be garnished.
Avoiding a Judgment
If you are concerned about the possibility of a judgment, take steps to avoid foreclosure. Some lenders allow the homeowner to sell the home for less than what is owed. If the lender agrees to a short sale, be sure the right to a deficiency judgment is also waived. A deed in lieu of foreclosure is another option that lets you relinquish your rights as well as liability. When you cannot avoid foreclosure, you may be able to negotiate or hire a third-party to negotiate with the lender to reduce the debt.
- Ron Webster: Deficiency Judgments in Florida
- CNN Money: You Lose Your House But Still Have to Pay
- Learn About Law: What Is a Deficiency Judgment in a Foreclosure
- All Foreclosure: Judicial and Non-Judicial Foreclosures
- Disability Rights Law Center: Banks May Not Garnish Social Security to Pay Mortgage Deficiency
- South Shore Savings Bank: Mortgage Servicing FAQ's
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