Kick Them When They're Down - Then Run Them Over

If you've recovered from learning about banks making loan mods that increase homeowner debt, here's more proof that banks are unaffected by inhibiting factors like decency - or shame:

Jan. 28 (Bloomberg) -- When John King stopped making payments on his home in Coral Gables, Florida, two years ago, he assumed the foreclosure ended his mortgage contract, he said. Last month, a Miami-Dade County court gave collectors permission to pursue him for $44,000 stemming from the default.

King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.

So people who have been foreclosed on, are being pursued for back payments by the banks. You're average homeowner is going to think the bank taking the house closes the deal -but it doesn't have to. The banks aren't using new law - but their use of them now stems from the changed economic landscape. Used to be, a bank could expect to sell the foreclosed house for more money than the original loan. With more homes underwater - banks are dusting off the brass knuckles to get every last dime they can.

That's not the worst of it:

It’s not just foreclosures that can trigger debt collections. Short sales also may lead to deficiency judgments years after former homeowners have moved on, according to Hillard, the attorney in Largo. In a short sale, lenders agree to let borrowers sell a home for less than the mortgage balance.

“Banks are being very careful to preserve their rights, either outright in the short sale agreement or by using vague language that leaves that door open,” Hillard said. About 90 percent of people who do a short sale think they are “off the hook.”

That was the case when two of his clients, Brigitte and John Howard, sold their home in New Port Richey, Florida, almost two years ago without using a lawyer to check the bank’s short- sale agreement.

“We got a call out of the blue saying we owed $20,000,” said Brigitte Howard, 45. “It was a shock. There was no mention in the short-sale contract that the bank might come after us for the difference.”

This, from an industry that is blowing their budget on payroll. Nice.

(H/t CJR, natch)