Many people who lost their homes to foreclosure between five and seven years ago have worked hard to repair their credit scores. Unfortunately just as things are getting better some are being chased by debt collectors for sums running into many thousands of dollars.
They are being chased for the difference between the amount owed on the house and the amount the lender managed to recoup once the property was finally sold. Ironically enough it’s a law that was designed to help former homeowners that has led to this new rush of lawsuits. In June last year the State of Florida reduced the statute of limitations during which lenders could chase foreclosure debt from five years to just one year. This resulted in a rush to collect on these debts. Some firms have purchased thousands of these debts for just pennies to the dollar. Many of the debts being pursued are for loans backed by Fannie Mae and Freddie Mac, and the thinking is that taxpayers have had to bear the loss of these mortgages and that now the government is obliged to try to recoup at least part of the money owed.
Apparently the agencies are focusing their efforts on homeowners who walked away from their properties even when they still had the ability to keep up with their mortgage payments. In comparison, if someone was hit by financial hardship due to divorce, job loss or an illness then their case is not likely to be pursued. However some people are questioning the agency’s abilities to make this call. Chasing old mortgage debt is legal in 30 states but is not often pursued, and many homeowners have no idea that lenders can go after them. In some states, for example California then any mortgage debt is wiped clean. A large number of people were under the impression that giving their property back to the bank would be the end of it.
The article in CNN Money.com points out that people do have the ability to defend themselves in court. They have the option to challenge the paperwork on the foreclosure or they can plead hardship in an attempt to get the debt settled. There is also the possibility that they might be able to broker a deal with the bank, and that if the bank forgives the debt then they will not challenge the foreclosure as this is a process that can drag on for a long time, often leading to heavy losses for the lender.