Nightmare Continues For Some Foreclosed Homeowners As Lenders, Collection Firms Begin Chasing Unpaid Loan Balances

In Boston, Massahusetts, the Boston Herald reports:

• Hank Lane figured that when he lost his Groton home to foreclosure in 2008, at least his long-running financial nightmare had come to an end. He was wrong. The $550,000 that Lane’s home fetched at auction covered most of his $650,000 first mortgage, but none of his $200,000 second mortgage - and the second lender wants its money. “I thought this was finally over, but it’s one of these things where there’s no end in sight,” said Lane, a 65-year-old biotech executive who fell on hard times after losing his job and coming down with cancer.

• Massachusetts homeowners who’ve lost properties to the state’s foreclosure crisis are finding that their troubles don’t necessarily end when the auctioneer’s gavel falls. That’s because foreclosure auctions in today’s weak housing market rarely net enough to pay off properties’ first mortgages, let alone any second liens. Bay State consumers are often technically on the hook for any remaining balances under laws lenders haven’t traditionally enforced, but are beginning to employ more and more. For instance, Bank of America keeps billing Lane for the $200,000 he owes on his second mortgage, plus some $10,000 in penalties and interest. The ex-homeowner also recently began getting a second set of bills from Dyck O’Neal, a Texas firm that buys bad debts on the cheap and tries to collect them. "They want a quarter-of-a-million dollars from me, but I don’t have it and I don’t know how to get it unless I rob one of their banks,” Lane said.

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• Unfortunately for consumers, [Massachusetts] state law allows second-lien holders to go after some post-foreclosure debts for as long as 20 years. Firms can also go to court and get “deficiency judgments” good for a second 20 years. With such judgments in hand, collectors can place liens against any future properties foreclosed homeowners buy, or even seek court orders garnishing debtors’ wages. Typically, collection activities begin months or years after people have lost homes to foreclosure and moved on. [...] Experts say consumers faced with such collections often end up declaring bankruptcy, sullying credit scores that had just begun recovering from the underlying foreclosures. Even when lenders don’t try to collect unpaid second liens, merely having one on your credit report can disqualify you from future loans.

For the story, see Banks, collection firms pursue claims after homes foreclosed (Nightmare returns).