Strategic Defaults are Under Assault by Bank of America, and others, and May Lead to a Rise in Deficiency Judgments

bank owned.jpgMany financial institutions, including Bank of America, are planning on getting tougher with those who do not try in good faith to work out a deal with the bank but who have the capacity to pay.

Proposals that are currently floating around, and being pushed by Fannie Mae, and others, include trying to encourage distressed homeowners to find alternatives to foreclosure by banning those who walk away from their home from getting new loans to purchase a home for seven years. Put differently, if it is determined that you stopped making mortgage payments despite having the capacity to do so, you may be banned from getting a new loan for up to seven years.

A strategic default is a decision by a borrower to stop making payments on a debt despite having the financial ability to make the payment. A Wall Street Journal report recently estimated that 1 in 5 mortgage defaults are “strategic”. Indeed, many are anticipating that the next wave of foreclosures will consist of more and more individuals seeking to walk away from homes that are currently underwater.

Another weapon that many financial institutions have in their arsenal to combat strategic defaults is the pursuit of a deficiency judgment. A deficiency judgment occurs when the financial institution has not only taken the home back, but has also sold the home. However, the proceeds of the foreclosure sale were not enough to cover the full amount of the original mortgage. That difference between the foreclosure sale, and the original mortgage, is often referred to as the deficiency.

If a bank, such as Bank of America, suspects that the borrower simply walked away from the mortgage despite having the financial capacity to pay, the bank will likely have an increased incentive to pursue the borrower and seek recovery of the deficiency by way of a deficiency judgment. It should be emphasized that if a deficiency judgment is properly recorded, it could remain in effect for up to 20 years in the state of Florida. That means that the bank could have up to 20 years to recoup each and every penny, plus interest, of the deficiency judgment.

It becomes important to consult with an experienced foreclosure defense attorney to understand your rights. We have been successful in defending many foreclosure cases when given an opportunity to develop a plan to properly defend the foreclosure.
If you are on the brink of foreclosure, and need to assess your legal rights, please contact our office today.