Years after going through being foreclosed on, some debtors are still dealing with collectors seeking back debt.
Recovering After Foreclosure
Ben McLarin lost his home to foreclosure in 2009. His ex-wife, who decided to stay in the house after they divorced, was unable to keep up with the payments. Despite the 2009 foreclosure, a debt collector called McLarin this year to tell him he was being sued for $115,000 – the difference that between what was owed on the house and the amount the lender received after the home’s sale. McLarin is not the only one dealing with this. “There are people who lost their homes to foreclosure five to seven years ago, took the credit hit, repaired their score and, just as they were recovering, they take another hit,” said Chip Parker, McLarin’s attorney.
Lenders Seeking Foreclosure Debt
It’s odd that a law deigned to help victims of foreclosure has led to the uptick in similar suits – a law that reduced the statute of limitations in which lenders could pursue foreclosure debt from 5 years to just a year.
According to attorney Roy Oppenheim, an attorney representing others homeowners facing similar lawsuits, says firms like the one that is pursuing McLarin purchased thousands of these “deficiencies” for pennies on the dollar. The collection efforts are supported by loans backed by Fannie Mae and Freddie Mac. Both agencies claim they have only targeted homeowners who walked away from homes they were still able to make mortgage payments on. But, according to Brad German, a spokesman for Freddie Mac, if a case ” involved financial hardship, such as job loss, divorce or an illness, Fannie Mae would not pursue the case.”
While going for old mortgage debt is legal in 30 U.S. states, it’s not usually pursued. And most borrowers are unaware of the fact that a lender can go after them for this debt. In California, mortgage debt is wiped clean. Luckily, there is a way to fight back – through pleading hardship or challenging the foreclosure paperwork. Additionally, people can look to strike a deal with the bank – for forgiveness and a promise to not contest the foreclosure.
Source: CNN Money, Old foreclosure debt coming back to haunt former homeowners, November 18, 2014