Twisted Titan
30th March 2011, 11:32 AM
http://www.palmbeachpost.com/money/foreclosures/foreclosures-hidden-risk-debt-that-haunts-for-two-1353778.html
He once lived just steps from the ocean in a home valued last decade at more than $500,000 . But John Ericksen has fallen - far - and the bank that took away his Juno Beach home last year isn't done with him yet.
In November, Riverside National Bank won a $151,461 claim against the down-and-out handyman who now resides in a one-bedroom trailer in Riviera Beach's scruffy Ocean Tide mobile home park.
Called a "deficiency judgment," the claim is what Ericksen, 59, still owes on the loan for a home he's already lost.
"They are actually trying to get money from me?" said a surprised Ericksen when contacted by The Palm Beach Post. "Good luck with that one. I'm pretty much out."
In Florida, banks have five years to file for a deficiency judgment and up to 20 years to collect.
But nearly six years into the state's foreclosure onslaught and with more than 100,000 foreclosures filed in Palm Beach County since the real estate bust, the number of deficiency claims sought by the banks is minuscule.
A review of thousands of Palm Beach County court records by The Palm Beach Post found just 133 deficiency claims filed between April 2006 and November 2010 on foreclosed residential properties. They were made by 88 servicers or lenders, with 68 resulting in a judge granting the right to pursue the deficiency.
Most of the lenders that have obtained deficiency judgments in Palm Beach County are small community banks.
Foreclosure defense attorneys and mortgage industry experts say that despite the lack of claims, the deficiency judgment is not a hollow threat. Banks are just too overwhelmed right now processing the foreclosures to switch gears and pursue the money they've been shorted.
For homeowners who thought their worst financial days were behind them when the foreclosure was final, experts predict things could get much worse.
"In two or three years the banks are going to get caught up and they will want to get that money back on their books," said Melva Rozier, a West Palm Beach attorney who handles foreclosures.
And it doesn't seem to matter if you have nothing.
Ericksen, who said he refinanced his family home to pay for the care of his late Alzheimer's-suffering mother, has no car or full-time job and is late on his electric bill and rent. The remaining tools he has are up for sale.
"This is all I've got," Ericksen said, swinging his arm in a semicircle around his worn-out trailer. "There's no point, what they're doing."
How a judgment is determined
In general, a deficiency judgment is the difference between the value of a foreclosed property when it is sold at auction, or what it is appraised for, and the outstanding debt.
For example, a homeowner who owes $300,000 on a home now worth $100,000 is on the hook for $200,000 after the foreclosure.
Because deficiency judgments have no boundaries, banks can seize assets in other states to fulfill a Florida deficiency judgment, said Margery Golant, a Boca Raton lawyer who said her clients are shocked to learn the consequences of a foreclosure.
"I hear from a lot of people who want to do it (foreclose)," Golant said. "But when I tell them what assets are at risk, half of them decide to do something different."
Florida is one of 38 states where financial firms can impose a deficiency judgment, according to the New York-based Deficiency Judgment Recovery Network. But the rules differ depending on the state and the type of foreclosure - whether it's judicial or nonjudicial.
In the past, banks were not so aggressive in pursuing deficiency judgments. When foreclosures were the exception and property values still strong, the losses to the banks were not worth the legal fees and collection costs.
Banks mum on the issue
With residential deficiency judgments still rare, the motivation and logic on who will be pursued, and when, is something of a mystery.
Anthony DiMarco, spokesman for the Florida Bankers Association, said he doubts banks will expend much energy seeking money from unemployed former homeowners with few assets.
That means strategic defaulters - people who can afford the mortgage but walk away from the home, usually because it is worth less than what they owe on it - would be prime targets
But Guy Cecala, chief executive officer and publisher of Inside Mortgage Finance, said he doesn't think banks are set up to make judgment calls like that on individual cases.
"They just do it across the board or they don't," Cecala said. "They don't say, 'This guy's a high roller,' and file for a deficiency."
Jupiter foreclosure defense attorney Charles Burns, who represents Ericksen, said he was stunned to find out the bank was going after him.
"It's the first one I've seen them do," Burns said of Riverside National Bank's claim. "He has no assets that the bank will be able to get."
For their part, banks are mostly mum on the subject of deficiency judgments. None of the major lenders, or the Mortgage Bankers Association, responded to requests for comment for this story.
Federal mortgage giants Fannie Mae and Freddie Mac have their own policies regarding deficiency judgments. Freddie Mac requires its servicers to identify cases where the pursuit of a deficiency is in Freddie Mac's best interest, spokesman Brad German said.
At Fannie Mae, deficiency judgments also are decided on a case-by-case basis, and depending on whether the loan had Private Mortgage Insurance.
Riverside National leads the way
The reason smaller banks have been the first to pursue judgments could be because the loans were not securitized and sold into trusts, meaning the losses remain on the lender s' ledgers. Another possibility is that the community banks purchased the defaulted loans from big-name lenders for pennies on the dollar and now hope to make a profit on the deficiency judgments.
Riverside National Bank, which was acquired by TD Bank last year, has filed nine deficiency judgments in Palm Beach County - the most of all the lenders identified by The Post. TD Bank spokeswoman Rebecca Acevedo said the company had no comment.
Joshua Rand, a principal in the Deficiency Judgment Recovery Network, is hired by banks to file deficiency claims. He said his company is very selective in whom it pursues.
"We see so many loans in Florida and to be honest, most of them are not pursuable by our criteria," Rand said. "At the end of the day, if the borrower doesn't have sufficient assets, it doesn't make sense economically or ethically to go after them."
Down on Chateau Circle, in the Ocean Tide mobile home park, Ericksen's chief economic concern right now is scraping together $1,600 so he can file for bankruptcy.
He acknowledges blame for taking out loans he couldn't afford, but wonders why the bank approved him when he had no good way to pay it back.
In 2006, Ericksen's Juno Beach home, which is within walking distance of the beach, was worth $507,302, according to the Palm Beach County property appraiser. An investor bought it at a foreclosure auction in September for $200,100.
"It's a sad story," Ericksen said.
He once lived just steps from the ocean in a home valued last decade at more than $500,000 . But John Ericksen has fallen - far - and the bank that took away his Juno Beach home last year isn't done with him yet.
In November, Riverside National Bank won a $151,461 claim against the down-and-out handyman who now resides in a one-bedroom trailer in Riviera Beach's scruffy Ocean Tide mobile home park.
Called a "deficiency judgment," the claim is what Ericksen, 59, still owes on the loan for a home he's already lost.
"They are actually trying to get money from me?" said a surprised Ericksen when contacted by The Palm Beach Post. "Good luck with that one. I'm pretty much out."
In Florida, banks have five years to file for a deficiency judgment and up to 20 years to collect.
But nearly six years into the state's foreclosure onslaught and with more than 100,000 foreclosures filed in Palm Beach County since the real estate bust, the number of deficiency claims sought by the banks is minuscule.
A review of thousands of Palm Beach County court records by The Palm Beach Post found just 133 deficiency claims filed between April 2006 and November 2010 on foreclosed residential properties. They were made by 88 servicers or lenders, with 68 resulting in a judge granting the right to pursue the deficiency.
Most of the lenders that have obtained deficiency judgments in Palm Beach County are small community banks.
Foreclosure defense attorneys and mortgage industry experts say that despite the lack of claims, the deficiency judgment is not a hollow threat. Banks are just too overwhelmed right now processing the foreclosures to switch gears and pursue the money they've been shorted.
For homeowners who thought their worst financial days were behind them when the foreclosure was final, experts predict things could get much worse.
"In two or three years the banks are going to get caught up and they will want to get that money back on their books," said Melva Rozier, a West Palm Beach attorney who handles foreclosures.
And it doesn't seem to matter if you have nothing.
Ericksen, who said he refinanced his family home to pay for the care of his late Alzheimer's-suffering mother, has no car or full-time job and is late on his electric bill and rent. The remaining tools he has are up for sale.
"This is all I've got," Ericksen said, swinging his arm in a semicircle around his worn-out trailer. "There's no point, what they're doing."
How a judgment is determined
In general, a deficiency judgment is the difference between the value of a foreclosed property when it is sold at auction, or what it is appraised for, and the outstanding debt.
For example, a homeowner who owes $300,000 on a home now worth $100,000 is on the hook for $200,000 after the foreclosure.
Because deficiency judgments have no boundaries, banks can seize assets in other states to fulfill a Florida deficiency judgment, said Margery Golant, a Boca Raton lawyer who said her clients are shocked to learn the consequences of a foreclosure.
"I hear from a lot of people who want to do it (foreclose)," Golant said. "But when I tell them what assets are at risk, half of them decide to do something different."
Florida is one of 38 states where financial firms can impose a deficiency judgment, according to the New York-based Deficiency Judgment Recovery Network. But the rules differ depending on the state and the type of foreclosure - whether it's judicial or nonjudicial.
In the past, banks were not so aggressive in pursuing deficiency judgments. When foreclosures were the exception and property values still strong, the losses to the banks were not worth the legal fees and collection costs.
Banks mum on the issue
With residential deficiency judgments still rare, the motivation and logic on who will be pursued, and when, is something of a mystery.
Anthony DiMarco, spokesman for the Florida Bankers Association, said he doubts banks will expend much energy seeking money from unemployed former homeowners with few assets.
That means strategic defaulters - people who can afford the mortgage but walk away from the home, usually because it is worth less than what they owe on it - would be prime targets
But Guy Cecala, chief executive officer and publisher of Inside Mortgage Finance, said he doesn't think banks are set up to make judgment calls like that on individual cases.
"They just do it across the board or they don't," Cecala said. "They don't say, 'This guy's a high roller,' and file for a deficiency."
Jupiter foreclosure defense attorney Charles Burns, who represents Ericksen, said he was stunned to find out the bank was going after him.
"It's the first one I've seen them do," Burns said of Riverside National Bank's claim. "He has no assets that the bank will be able to get."
For their part, banks are mostly mum on the subject of deficiency judgments. None of the major lenders, or the Mortgage Bankers Association, responded to requests for comment for this story.
Federal mortgage giants Fannie Mae and Freddie Mac have their own policies regarding deficiency judgments. Freddie Mac requires its servicers to identify cases where the pursuit of a deficiency is in Freddie Mac's best interest, spokesman Brad German said.
At Fannie Mae, deficiency judgments also are decided on a case-by-case basis, and depending on whether the loan had Private Mortgage Insurance.
Riverside National leads the way
The reason smaller banks have been the first to pursue judgments could be because the loans were not securitized and sold into trusts, meaning the losses remain on the lender s' ledgers. Another possibility is that the community banks purchased the defaulted loans from big-name lenders for pennies on the dollar and now hope to make a profit on the deficiency judgments.
Riverside National Bank, which was acquired by TD Bank last year, has filed nine deficiency judgments in Palm Beach County - the most of all the lenders identified by The Post. TD Bank spokeswoman Rebecca Acevedo said the company had no comment.
Joshua Rand, a principal in the Deficiency Judgment Recovery Network, is hired by banks to file deficiency claims. He said his company is very selective in whom it pursues.
"We see so many loans in Florida and to be honest, most of them are not pursuable by our criteria," Rand said. "At the end of the day, if the borrower doesn't have sufficient assets, it doesn't make sense economically or ethically to go after them."
Down on Chateau Circle, in the Ocean Tide mobile home park, Ericksen's chief economic concern right now is scraping together $1,600 so he can file for bankruptcy.
He acknowledges blame for taking out loans he couldn't afford, but wonders why the bank approved him when he had no good way to pay it back.
In 2006, Ericksen's Juno Beach home, which is within walking distance of the beach, was worth $507,302, according to the Palm Beach County property appraiser. An investor bought it at a foreclosure auction in September for $200,100.
"It's a sad story," Ericksen said.